Toyota Case Analysis

Context and background

Toyota Australia, a subsidiary of Toyota Motors Corporation Japan, was founded in 1957 in Port Melbourne, Victoria, Australia. It started assembling vehicles in Australia in 1963. It started producing engines in 1978 and car body panel in 1981.

[pic 1]

Business Model & Nature of Product:

Toyota Australia followed a balanced business model which included a three-pronged strategy of manufacturing vehicles domestically, exporting some of its domestically manufactured vehicles and importing some components from cheaper sources.

• In the domestic manufacturing process, Toyota followed the “just in time”9 approach to production, which allowed the entire production process to be regulated by the natural laws of supply and demand.
• Toyota also followed “Jidoka,”11 automation with a human touch, Such approaches to the domestic manufacturing process strengthened Toyota’s brand image by contributing to Australian society in terms of value-addition and employment, and good quality products, and supported its position as the market leader.

[pic 2]

Competitive Fragmented Market Structure

Australia’s low-tariff barriers and highly open trading environment since mid-1980s provided consumers with easy access to imported cars. Approximately 65 brands and 365 models with 1.1 million new car sales per year, making the Australian automotive market both highly competitive and the most fragmented in the world.

TOP-SELLING CAR BRANDS IN AUSTRALIA, 2012–2013

[pic 3]

Government Policies and Declining Protection

 The Australian government had been following liberal trade policies since the mid-1980s. At the same time, tariffs were brought down to 5 per cent by 2010. Though, to help the automotive industry to adjust to the declining tariff levels, the government provided direct assistance to the manufacturers, it was linked to investment and to research and development expenditure.

Statement of Problem

Australia’s domestic market for the car was very thin. The company strategy of exporting it to the different countries in order to cut cost the companies export accounted for 70% of total production. The scenario changed the Australian dollar appreciated and thus giving lesser returns for cost incurred, further the decrease in import tariff also added to the perils of the company.

• What is scale economies?

It is the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

• What is diseconomies of scale?

It is a situation in which economies of scale no longer function for a firm .With this principle rather than experiencing continued decrease in costs and increasing output, a firm sees and increase in marginal costs when output is increased.

MARKET STRUCTURE FACED BY TOYOTA AUSTRALIA

The market structure faced by Toyota is an oligopoly when it comes to manufacturing domestically due to presence of only 3 manufacturers, namely Ford, Toyota and GM. The challenges posed in such a market environment are that the decision of one firm affects the operations of other firms in the case here as GM’s decision to exit posed some challenges for Toyota.