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PESTLE Analysis

Currently, Toyota faces a need for accelerated investment, in order to

deploy the new technologies, for pressing geo-political, economic,
environmental and societal reasons.
Political. Observers will see a continuing progression in the ruinous
steps which have forced the industry into a socio-politico-economic corner.
Whether this is related to flat demand or to the companys creation of an everwider range of vehicles that many buyers seem to care little about, there is a
problem. The company is likewise linked closely to the policies of governments,
the earnings of banks. Little wonder then that so many emerging countries are
keen to develop an auto sector or that there is such a political pressure to protect
it in the developed countries. Toyota Company is currently dominated by little
more than a handful of firms, each wielding colossal financial, emotional and
political power. The companys approach to dealing with political institutions
has not always been brilliant. It tends to be good on technical issues, although it
has not always fully presented the longer-term options, in order to make the
choices and their implications clear.

Economic. For much of the developed world, and increasingly for the
developing world, Toyota Company is a pillar company in auto mobile business,
a flag of economic progress. Without Toyota Company in automotive industry,
it is impossible to develop an efficient steel business, a plastic industry or a
glass sector other central foundations of economic progress. The Toyota
Company has been a core company, a unique economic phenomenon, which has
dominated the twentieth century (2007). However, the automobile industry
including the Toyota Company now suffers from a series of structural schisms
and has become riddled with contradictions and economic discontinuities. For
the capital markets and the finance sector, it has lost a lot of its significance, as a
result of ever declining profits and stagnant sales. The proliferation of products
means that it has become hopelessly wasteful of economic resources. While all
these and more sound like a very gloomy assessment of such a vast economic
phenomenon, the industry is not in the end despondent. A different future is
possible for the industry, a highly desirable one.

Social. As part of the development in automotive industry, the Toyota

Company actually affects the society as a whole. It employs millions of people

directly, tens of millions indirectly. Its products have transformed society,

bringing undreamed-of levels of mobility, changing the ways people live and
work (2007). The social value of the additional mobility that this industry brings
involves the value of the people being able to commute over longer distances
easily, among many others. For most of its existence the Toyota Company has
been a model of social discipline and control and it is not just that the auto
sector offers a pillar of something else. There are, on the other hand, particular
social issues to address in many developing countries, often those that are the
result of an undertone of religious faith. Toyota company has the role to play in
helping develop the mobility of such countries and it can be achieved at an
acceptable social cost of the country is prepared to learn the necessary lessons
from those who have traveled this route before it, and to make the necessary

Technological. The Toyota Company works on a scale so awesome

and has an influence so vast that it is often difficult to see. The level and
diversity of technologies that it must deploy are increasing, which imposes both
new investment burdens and new uncertainties and risks (2007). Roughly a
million new cars and trucks are built around the world each week they are
easily the most complex products of their kind to be mass-produced in such
volumes. The industry uses manufacturing technology that is the cutting edge of
science. But still, the potential for developing coordination skills, intellectual
capabilities and emotional sensitivities through electronic technologies remain
far from fully exploited. There are numerous additional near-term technological
opportunities to adapt the company to changing energy availability. The
possibilities suggest that automotive technology is unexpectedly robust and
provides a powerful defence against energy starvation even if the real price of
oil climbs steadily during the next couple of decades.

Legal. Toyota Company is subject to numerous technical directives and

regulations, as well as legislation of a more legal nature. The legislation covers
areas such as competition law, intellectual property law, consumer protection
and taxation, and emissions (air quality and fuels). When the auto parts industry
reached full development, accelerated technological efforts were made to create
a web of local suppliers that would make it possible to meet the growing legal
requirements for the national integration of production.

Environmental. Other than the vehicles themselves, and the roads and
fuel needed to run them; the business is intricately tied to the manufacture of a
wide range of components and the extraction of precious raw materials.
Indirectly, it brings people road congestion, too many fatalities and a wave of
other environmental troubles. The effect to the Toyota Company is that they
needed to establish R&D centres to take advantage of research infrastructure
and human capital, so that they can develop vehicle products locally to satisfy
the requirements of the environmental and safety regulations more effectively.

Lastly, Japan has limited space and is not suitable for some
businesses of Toyota. Some of Toyota's activities need bigger places
to operate, so it has to operate in other countries. For example,
Toyota controls two businesses in Australia. Toyota Motor Corporation
Australia Limited controls production and sales of automobiles, parts,
and industrial vehicles. Australian Afforestation Pty Limited,
however, operates afforestation activities handling raw materials for
paper making which is needed for the automobile production.19
Political factors
Toyota Motor Corporation is the world's third largest automaker,
offering a full range of models mini vehicles to large trucks. Global
sales of its Toyota and Lexus brands combined with those of Daihatsu

and Hino, totalled millions units in year 2000, besides is 12 plants

in Japan, Toyota has 56 manufacturing companies in 27
countries/locations and components. As of March 2002, Toyota
246,700 people worldwide (on a consolidated 15.1 yen trillion in the
fiscal year to March 2002. Diversified operations include
telecommunications, prefabricated housing and leisure boats.
Every country on whose soil Toyota operates will definitely face
immense political challenges in view of the differences in policies,
rules and regulations governing its corporate or business existence in
that country. political policies are established, implemented and
altered depending on the reaction from political parties, courts,
government agency, legislators, the chief executor officer will try as
much as possible to obtain within or influence as much as possible
policy of its interest either through working closely with the policy
maker or engaging in lobby activities.
The system of government existing in a country in which Toyota
operates, being it a democratic, aristocrat or another form will
greatly challenge its survival. Toyota has been able to strive better
on a democracy that engages freedom and other rules that safeguard
individual and cooperate right. Although political risk can occur in
politics as such governmental take over of property either with or
without compensation, operational restriction that impede the
company's ability to take certain actions and agitation that dispute

The Legal factor

The legal system operating in a country in which Toyota dwells is
closely related to the factors that affect its political system. For
example, the degree of independence of judicial from the political
process poses a major factor the legal existence, survival and growth
of Toyota's existence in that region. National laws affect business
especially in the areas of health and safety standards, employments
practices, and patents and trade probations. Laws also exist that
govern cross-border activities, such as the investment of capital, the
payment of dividends to foreign investors and customs duties on
imports. International laws such as treaties governing the
cross-border transfer of hazardous waste, can also determine how a
firm operates in transferring shipments across borders.
The Economic factor
The economic environment and its hydra-headed indices such as
inflation rate, relationship between the power of domestic and
international currency, national income, taxation, balance of
payments, and availability of resources and so on pose great
challenges to Toyota.
Global financial volatility, disruptive force part of 1990s is not
likely to be eradicated in the next century, many lessons have been
learnt about the need to avoid excessive financial exposure by
borrowers and lenders. Progresses have been made to strengthen
provision of economic polices. However, large part of

institutionalized capital is likely to play havoc with markets and

currencies from time to time. Emerging economies will be particularly
vulnerable. Investment is likely to pick up in those nations where
Toyota operates that make the most successful and deeply rooted
regulatory, legal, finance and corporate reforms
Social-Cultural factors
According to the management of Toyota "since its establishment,
has been aiming to enrich society through car making ,with the
intention of winning the trust and respect of the international
community to maintain stable long term growth while striving for
harmony with people, society and environment. This hydrous task is
summarily a battle with society and culture, the challenge Toyota has
taken up with its global vision 2010.
Toyota going global combined with changing demographics_ aging
societies in advanced economies and growing numbers of young
people in
emerging ones will require companies as never before to pursue
multicultural human resource policies and facilitate the international
mobility of their best talent.
To improve consumer and social confidence, Toyota has put greater
emphasis on transparency regarding information on the product and
services, the environmental practices, treatment, workers, support for
civic activities and political contributions of their company to
enable the customer judge a company's behaviour and its business

Technological factors
In addition to physical and societal factors faced by Toyota, the
company is also faced with competitive and technological factors
affect the smooth running operations of the company.
Porter's approach to industry analysis
Michel Porter, an authority on competitive strategy, contends that a
corporation is most concerned with intensify of competition within its
industry. The level of this intensity is determined by basic
competitive forces. "The collective strength of these forces", he
contends, "determines the ultimate profit potential in the industry,
where profit potential in the industry, where profit potential is
measured in terms of long run return on investment capital". In
carefully scanning its industry, the corporation must assess the
importance to its success of each of the 5 forces, those are as
follows: threat of new entrants, rivalry among existing firms, and
threat of substitute products or services, bargaining power of buyers,
bargaining power of suppliers. The strong each of these forces, the
more limited companies are in their ability to raise prices and earn
greater profits. A high force can be regarded as a threat because it
is likely to reduce profits. A low force in contrast, can be viewed as
an opportunity because it may allow the company to earn profits. In
the short run, these forces act as constraints as a company's
activities. In the long run, however, it may be possible for a

company, through its choice of strategy, to change the strength of one

or more of the forces to the company's advantage.
Threat of new entrants:
New entrants to an industry typically bring to its new capacity, a
desire to gain market share and substantial resources. They are,
therefore, threats to an established corporation. The threat of entry
depends on the presence of entry barriers and the reaction that can
expected from existing competitors. Global entrants may pose a
to Toyota's market share, especially from other Asia, Europe & U.S.A.
car market leaders. Toyota as global car manufacturing company
its production of vehicle outside Japan in 1959. Toyota has
established its own car manufacturing plant in different countries in
Europe and successfully operating its business activities. In terms of
car manufacturing company index, the following companies are as
1) Ford.
2) BMW.
3) Jaguar.
4) Vauxhall.

5) Mitsubishi.
6) Suzuki.
Ford, BMW & Jaguar already has secured market position in the
market environment, therefore their threat is made all the greater as
they now have knowledge of the British market system and are
their customer and loyalty base. On the other hand Toyota is trying to
adopt the market share in Europe. Toyota as a multinational
has already launched its product to the online market and is currently
mature stage of online product cycle.
However Toyota's online venture is in mature stage besides this they
are always aware of what the potential threats to its business are.
More established online car manufacturing company, who have
identified and possibly combated the risks to their market share may
gain a competitive edge here, like rival Ford.
In a price sensitive and competitive industry achieving profits where
prices are nailed down, low cost production is particularly difficult,
especially if there is elasticity of demand, the loyalty of the
customer may not be gained or retained unless cost incentives and
quality assurance are customary. The purpose of online sales
facilities is to boost more sales and gain profit.

Customers are prone to repeat orders, the backbone of business

therefore switching costs is not such as threat if brand loyalty is a
prevalent sales feature. Therefore Toyota may be viewed as a threat
other car manufacturing company such as Toyota.
Threat of substitute products or services:
Substitute products are those products that appear to be different but
can satisfy the same need as another product. Substitute products on
the market could pose a threat to Toyota's if customers are price
sensitive. Ford, BMW, Vauxhall, Mitsubishi etc all private goods at
affordable prices and target the lower end of the quality conscious
customers. If Toyota's car prices are competitive as a result of the
quality of the vehicle or service being acceptable inferior and the
production cost are low, this will ultimately challenge Toyota's cost
leadership pricing strategy.
The threat of cheap imitations may an irresistible challenge for the
customers, if brand loyalty is not an issue and so may be able to
benefit from the cheaper prices if willing to compromise quality. The
more indirect the substitute and the more cleverly packaged the
imitation, the less likely that the price and performance will be
comparable and switching costs for customers will be made easier.
Bargaining power of buyers:
Buyers affect an industry through their ability to force down prices,

bargain for higher quality or more services and play competitors

against each other. The customer is ultimately king when they are car
companies' consumers. They can exert more power over Toyota's
than offline as the technology involved offers them the freedom of
choice not just of product but also of vehicle companies as it is
convenient to switch. Brand loyalty is an important issue as most end
users will stay with the same product and most likely will switch to
online and stay loyal. However the convenience factors of online
purchasing makes it easy for consumers to target specific brand
products from other online car manufacturing companies, there by
reducing the amount of overall spend per car manufacturing
as this is now split among the choices available.
Bargaining power of end users is not necessarily exerted on line
regarding price sensitively of goods. The sensitively surrounds the
pricing strategy used by Toyota's as cost leadership and
differentiation. Toyota's consumers are looking for quality goods and
a good serve.
Bargaining power of suppliers:
Suppliers can affect an industry through their ability to raise prices
or reduce the quality of purchased goods and services. Toyota's look
to their internal means and market share to determine whether they
have power over the supplier and exert to gain their competitive edge.
Suppliers are forced into comprise, lowering their already competitive
prices. Toyotaalso looks to improve their own efficiencies in choosing

their suppliers. This strategy is entitled, together faster, simpler.

A programme to improve the quality levels of service from the
the force is to then pass this on to the customer. As the industry is
subject to inflation, interest rate increases, exchange rate
fluctuations and labour laws, Toyota as a car manufacturing company
aware of their low cost strategy and look to competitive pricing to
begin with the supplier, so that the internal competing demands for
finances are prioritised.
Rivalry among existing firms:
In most industries, corporations are mutually dependent. A
move by one firm can be expected to have a noticeable effect on its
competitors and thus may cause relation or counter efforts. For
example: car manufacturing industries dominated by Toyota, Honda,
Ford, and jaguar increased all level of competitive activity to such
an extent that any price reduction or new product introduction is now
quickly followed by similar moves from other car manufacturing
companies. The same is true of prices in the U.S. computer industry.
Porter contends, it is important to look beyond one's immediate
competitors, as there are other determinants of profitability.
Specifically there might be competition from substitute products or
services. Buyers may perceive these alternatives as substitutes, even
through they are part of a different industry. An example would be
plastic bottles, cans and glass for packaging soft drinks. So not all

competition lies the same industry.

There may also be a potential threat of new entrants, although some
competitors will see this an opportunity to strengthen their position
in the market by ensuring, as far as they can, customer loyalty may be
built out of trust and familiarity possibly based on quality. Finally,
it is important to appreciate that companies purchase from suppliers
and sell to buyers. If these forces are powerful they are in a
position to bargain profits away through reduced margin, by forcing
either costs increases or price decreases.