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Toyota Porter’s Five Forces Analysis

A Five Forces Analysis of Toyota:

Toyota Motors is among the world’s biggest vehicle makers even if not the biggest one after being toppled by Volkswagen.  However, that has diluted Toyota’s spirit because it is an aggressive brand and in a mood to grab its position back. It is a global company known for technological innovation and excellent models of cars. Known for its technological leadership the brand is also investing heavily in automated driving to be the first. Toyota has also released Toyota Prius, the world’s bestselling hybrid car. However, while Toyota is one of the best known brands of vehicles in the world, there are several forces in the environment that affect its business. The Porter’s Five Forces model is an analytical tool that helps analyse the attractiveness of any industry.  These forces affect the state of competition and competitive strength of any brand and are important for strategy formulation. Check out this Porter’s five forces analysis of Toyota Motors:

Bargaining power of suppliers: Weak

The bargaining power of suppliers is a weak force in the case of Toyota. There are several reasons behind it.  Apart from the large number of suppliers, their moderate size is also a reason that they cannot influence Toyota. Generally these suppliers are small or moderate in size and that reduces their ability to integrate forwards. Thus, the chances of any competition from the suppliers for Toyota are nil. Moreover, due to the high number of suppliers, there are a large number of options before Toyota. It can always switch to a new supplier without any trouble. However, for any of its suppliers, it can mean a major loss of business.  All these factors give Toyota better control over the suppliers and their bargaining strength remains low.

Bargaining strength of customers: Strong

The bargaining strength of the customers in the vehicles industry is high. The customers have several options before them and switching costs are also low. There are competing firms that offer similar products at similar prices. Every customer is a highly informed customer and free to make his own choice.  Hey can easily find information and select the most suitable option for them.  All these factors increase the bargaining strength of the customers of the buyers of Toyota. Whatever bargaining strength Toyota holds is because of technological and design innovation. Based on these things, it has acquired an impressive level of customer loyalty. However, this force gets countered by the formidable level of competition in the industry.

Threat of substitutes: Moderate

The threat of substitutes before Toyota is moderate. From vehicles made by other brands to public modes of transportation, there are several substitutes for the Toyota products. The switching costs are also quite low and in several areas people may find it more convenient to use the substitutes. Moreover, for the middle class and lower middle class consumers often the public mode of transport proves less costly. To moderate this threat, Toyota has released models that are low on fuel consumption, good for the environment and the smaller family cars are also less costly. All these factors counter the threat of substitutes but only to a little extent. Overall, the threat of substitutes is moderate.

Threat of new entrants: Weak

The threat of new entrants is a very weak force in the automotive industry. First of all there is a very large capital investment involved in the foundation and management of an automotive brand. Any new brand trying to enter the automotive industry would need to spend a lot on supply chain, distribution system, marketing and hiring skilled human resources. Without differentiation and innovation it would be difficult to grab a market share. Both the entry and exit barriers are big. The incumbent firms can exploit economies of scale and are in a position to create immense pressure on new entrants based on their competitive advantages. Moreover, for any new entrant to grow its market share, it would have to spend a lot on marketing and promotions. All of these factors create major obstacles in the path of any new brand trying to find foothold in the automotive industry.

Competitive Rivalry in the Industry: High

While the number of major global players in the automotive industry may be small, still the level of competition among them is high.  The firms are highly aggressive in terms of business and marketing. Apart from technological innovation, these brands also compete in terms of design innovation and other features like passenger safety and fuel efficiency. The competition has kept growing intense as most rivals operate in the same markets. This also increases the cost of R&D and marketing.  Some of the competitors of Toyota include Ford, Hyundai, and Honda among others. All these forms focus heavily on passenger convenience and innovation. Overall, eh level of competitive rivalry in the automotive industry is very high.

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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