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Executive Summary
Toyota has been the largest automobile company and has tried to maintain its market. Though it had some set backs which came from the recalls in 2009, there is no much damage and it has continued to make profits despite the Economic, Legal, political, social and the competition factors affecting it.
CONTENTS
Political factors
Economic Factors
Social factors
Competition
Legal Factors
Section 1- Introduction
1.1Background information
Due to changes in the business environment, there has been the need of conducting analysis on the Business Environment to identify the issues that affect Toyota Company and give the report. The report is necessary because it helps in knowing the current situation and making strategies that will improve it.
1.2 Terms of reference
The main aim of this report is to identify the issues that affect the Toyota Company business.
1.3 Scope
This covers the external business environment because all businesses are located within an environment and there are external factors that affect and influence its performance. These external factors are located outside the office or the factory walls. Business environment is the environment that surrounds the businesses. The external factors will in turn affect the internal functions of the business and its performance.
Section 2– Business Environment and its effect on Toyota Motors.
2.1 Political factors
2.1.1 Changes of the government policy affect the businesses. The Toyota Company has not been an exception and it has been affected by the political factors. The new directive of the European Union Parliament and the European Union Commission of strict emission standards of the commercial and the light vehicles have affected the Toyota Company. The directive states that the manufacturers of vehicles will be responsible of the emissions of the vehicles they manufacture for about five years. Most countries have adopted the regulations and this forces the manufacturers according to Toyota Motor corporation SWOT Analysis, 2009), to manufacture low emission vehicles that will meet the stringent emission standards. This has resulted and caused additional cost for manufacturing, testing and developing operations in Toyota.
2.1.2 Corruption has grown to high levels and as Japan Autos Report, (2011), states it has widened inequalities and as a result the environment has been degraded and the poverty in the rural areas has increased causing a great threat in the businesses. This has caused social unrest and the Toyota business has been affected.
2.2 Economic factors
2.2.1 Toyota motor companies in has largely been affected by global economic changes. The inflation has caused labour unrest which in return has made the workers to plan strikes that have affected the company. The workers complain that the company does not increase their wages. Some of the plants have been shut down because off the workers strikes. This causes the employer who is the Toyota Company to increase the salaries of its employees for them to end the strikes. The gap between the poor and the rich has been becoming big and the workers want to try and bridge the gap. This has increased the expenses of the company because of the rise in the payments.
2.2.2 There certain things that may happen and in the economy and in turn affect the business. The things include when the taxation terms in a certain country changes, when the general demand of certain product rises, when there are changes in the exchange rates, when the interest rates in the banks changes, when the government spending increases and other European and global economic factors. This may cause the businesses to go down and reduce their profits.
2.2.3 The Toyota company pays its employees pension benefits and insurance based on post retirement and health insurance. The expenses of the post retirement benefit have increased and some are yet to be paid. As Toyota Motor Corporation SWOT Analysis, (2010) suggested, this has caused great problems for the company. The company needs to make and plan regular cash contributions to prevent the liabilities rising too much. This affects the liquidity of the company when the liabilities are more than the assets of the company.
2.2.4 The exchange rate has affected the Toyota Company. The fluctuations in foreign currency exchange rates lead to fluctuation in the value of the respective currencies. In the case of Japan, yen and other currencies like euro and the dollar have been greatly affected. The financial statements of Toyota Company in Japan have always been presented in yen and they are being affected by the foreign exchange rates when they fluctuate. This affects the prices of the products according to Market watch Automotive, (2009), which are sold by the Toyota and the raw materials they buy in other currencies. Since most of the transactions of the Toyota Company are usually conducted in dollars and later converted to yen, the appreciation of the yen in recent years have affected the company’s valuation.
2.3 Social factors
2.3.1 Social factors affect the business according to how the communities and the consumers behave and belief towards the business. Changes in attitude towards the products or the number of population in an area also affect the business.
2.3.2 The Toyota company has been receiving complains from their customers as Taylor III and Alex, (2010), states because of the quality of the vehicles they release. The Toyota Company did not take the complaints seriously as expected. The complaints were because of the unintended acceleration among other things. They complained on simple mechanical problems they wanted resolved. This caused the Toyota Company to recall many vehicles and it has affected the company because their customers have been inconvenienced and it has also added the costs to the company of recalling the vehicles and rectifying the problems. The Toyota has also lost the public trust because it has always been linked to quality and it has to work hard to regain the trust.
2.3.3 The goal of the Toyota Company was to become the largest auto company in the world. They overtook the General motor that was the largest automaker in the world and as a result the population that needed its products increased. The growth in population has affected the management and they no longer anticipate for the problems that might occur in the course of manufacturing their products. This has according to Liker and Jeffrey, (2010), compromised the quality of their products. When the quality of a certain product is compromised, the market goes down and their sale reduces.
2.4 Competition
2.4.1 Competition depends on how other companies with the same products compete with your business. Toyota Company has been receiving competition from other big companies that manufacture cars in various markets. Factors that affect competition are like the feature of the product, the time taken for innovation, and the quality of the products developed. The price of the product is also one of the major factors that affect the competition as stated by Market Watch, (2009).
2.4.2 A company may lead to lower sale of the vehicle because of the financing terms and the services given to the customer.
2.4.3 The competition problem has made the company to cut the costs of their products to meet the growing demand. In the process of cutting cost they have compromised with the quality control of their products because they want to reach their large targets. The company has reduced the money they used to pay to their suppliers and the companies who supply them with raw materials because of cutting the cost of their products. This has caused great problems because of the rising cost of the raw materials of steel and aluminium as stated by Market Watch, (2005). The suppliers have been complaining and it has caused some companies say that they are being squeezed by the Toyota Company and that they will no longer accept their orders. This may affect the company’s result of operation and the financial conditions.
2.5 Legal factors
2.5.1 The Toyota company has been facing legal lawsuits because of the mechanical defects that have been affecting their customers. They are also facing death suits of the people claimed to have died because of the defects. The insurance companies are also asking for compensations because they have paid out claims to customers who were affected.
Section 3- Conclusions
3.1 Political. The Toyota business is experiencing challenges because of its environmental factors which cannot be avoided under any circumstances. The political factors have largely been contributed by the stringent emission standards and the company must comply with the standards.
3.2 Economic. The economic factors have been contributed by the inflation and the workers see the need on wages increment to sustain their needs.
3.3 Social. There are also the social factors that affect the Toyota Company and they were caused by some mechanical problems which brought defects in the cars that were manufactured and as a result some customers lost their trust in the products of the Company.
3.4 Competition. Other companies manufacturing the same products have caused a big competition and as a result the company lowered the prices of its products.
3.5 Legal. The legal lawsuits destroy the image of the company and this has affected the Toyota Company to some extent.
Section 4. Recommendations
4.1. Legal. The Company should be careful about the legal proceedings that are going on and they should be honest for them to gain the confidence of their customers back. They should also be ready to make losses and settle the cases with the insurance companies about the subrogation claims.
4.2 Competition. With the rising competition, the Toyota Company should try to concentrate on the quality of its products and ensure that they have confidence with the cars they released to the market. This will help in maintaining the Toyota brand and the customers will be satisfied with what they get. The decision they made of recalling the vehicles that had mechanical problems, this will help in regaining the confidence of the users of the vehicles. The company should make sure that in future such problems are detected early and dealt with. They are supposed to have check system that will help them maintain quality.
4.3 Economic. The Company should seek for a lasting solution that will make the workers comfortable. They may negotiate solutions with the workers and provide good beneficial schemes that will please them.
4.4 Political. Complying with the stringent standards of the emissions may seem to be an expensive undertaking, but the best advice would be to comply and manufacture cars that are emission free. This will increase the cost but in the long run the high costs will be recovered and they will not have problems with the authorities.
Appendices
Trained in the business. The Toyota Brand
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Bibliography
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