Toyota Strategic Alliances - Essay Example

?Toyota Strategic Alliances Theories and analytical tools to assess strategic issues Decision makers in organizations are continually showered with various issues that can potentially affect the current performance and actions of their companies. They make constant adjustments in their strategies in order to keep them updated with the needs of the changing environment. A strategic issue is “an emerging development which, in the judgment of some strategic decision makers, is likely to have a significant impact on the organization’s present or future strategies” (Dessy, 2010). Although, decision makers make rigorous attempts to respond to these changes, companies constantly face various challenges with regard to different issues pertaining to the external and internal environment of the firm. Hence, assessment of strategic designs of organizations is critical to their success and performance. In the face of the changing global business environment, decision makers should keep in mind that strategy choices become obsolete within a very short period of time. Past styles of operating might not fit the current challenges posed by the competitive environment of the current business world. It is important to identify the chief issues facing the organization in the current financial year or a period of financial years and select some issues from this multitude to deal with at a particular point of time. Selection of these issues are made with regard to the current business position of the firm, technological advancement of the firm, its economic conditions, human resource capacity of the firm, social and political contexts in which it operates. This process requires the organizational leaders to sort the issues faced by the firm on the basis of the importance level attached to the issue. There are various tools that organizational decision makers might exploit in order to assess the importance of the issues faced by them. The most commonly used aspects for strategic decision making are the demographic aspects of the issue, degree of certainty associated with the particular issue, economic interpretation of the problem and political connotations of the issue. These are important diagnostic processes that help decision makers to make their strategy choices. Higher focus maintained on sorting and assessing issues demonstrate a better understanding of the issues. Hence, decision makers are better positioned to make the most appropriate response to these problems (Tan, Shen, and Langston, 2012; Jauch, 2010). The major dimensions in the strategic decision making process are top management decision, allocations of company resources for various activities, long term objectives of the firm, future orientation of the firm, multifunctional and multi- business consequences of the decisions and general external environment of the firm. This process is known as “strategic issue diagnosis (SID)” (Huff and Jenkins, 2002, p. 276). SID is a tool used as the first step to identify the issue and assess its characteristics. Diagnosis outputs cast important impact on the following stages in the decision making process. Strategic issues facing companies in Asia Pacific All business firms, in their heart, aims at a general notion; increasing the profits of the firm. For any decision to make sense in the decision making process of the business, it has to be directly (or indirectly) associated with the act of increasing profits. In any other case, the business does not have any strong reason to make investments in this decision. There are two basic issues that a company might face in its path of long term development. These issues are highly contrasting to one another. One issue pertains to the problem of expanding the business, while the other relates to contracting business. In the Asia-Pacific region, business firms face either of these two issues. In this post financial crisis period, a majority of countries are striving to recover from recessionary pressure. Therefore, there is low level of aggregate demand in the economy. Companies are faced with low demand which casts serious impact on their performance trend and also the strategic decision making of the organizational leaders. Nature of strategic issues in national and international context of Asia Pacific region Expansion of the company can be made on two different lines; external expansion and internal expansion. External expansion can be made through merger and acquisition or by making joint venture (Megginson and Smart, 2002). Internal expansion, on the other hand, refers to expansion of the company by strengthening the company’s own resources and financial assets. The company also might depend on external sources of finance, such as loans. Due to low demand in the developing countries of Asia as well as the countries of the Pacific region, the companies need to devise some unconventional marketing strategies for capturing a bigger market share or to increase interest and demand of among the existing customer base for the existing products of the company. Some companies face an opposite force in their path of development. With advancement of technology, companies might make major changes in the technology used in the processes of production and operations. Such changes include installation of automated machines in the production units or make major alterations in the procedure of management by installing software to monitor and supervise the operations of the employees. These changes make a large chunk of the companies’ workforce as ‘extra’ and marginally unproductive. Hence, in order to adhere to its profit objectives the company might need to follow the policy of retrenchment. Challenges facing Asia Pacific business The business enterprises in the Asia pacific region face a multitude of challenges, given the volatile global business environment. Financial instability and rising costs Following the financial crunch, companies are facing a credit squeeze. Some companies are faced with severe financing issues. As a consequence of low demand, companies are facing drastically tumbling orders and diminishing cash flow. Some companies are unable to respond to this change in demand immediately and therefore suffer from rising costs due to inventory accumulation (Pettis, 2013). Rebalancing the economies Some countries, such as, China, are making considerable efforts to rebalance their economy and bring a shift in the pattern of aggregate demand. China has posed high demand for various goods in the international market despite the recessionary wave that has reduced demand by most of the countries. This has adversely affected the domestic industries of China. The Chinese government has therefore, decided to shift its economic growth from being export oriented. It is encouraging domestic consumers to make greater demand for products produced domestically. This implies that the export partners of China are significantly hurt (Aziz, 2006). Opportunities Inventory management skills In the present business situation, companies are passing through a phase of ring cost structure, which is triggered by inventory costs. This has compelled the management of these companies to device fresh inventory management strategies. These strategies are capable of helping the company, reduce inventory costs in near future. It would allow the company to modify their cost structure, which would impart a competitive advantage to these companies over firms that have not devised modern cost effective measures (EIU, n.d.). Development of intra regional trade The new policies of the government are diverting domestic demand towards domestic suppliers. This develops a new pattern of trade; the intra regional trade. This would help the companies to enter into new trade agreements and tap new potential markets (Lee and Holmes, 2013). Company strategic responses: Toyota Toyota Corporation is the largest car manufacturer in the world, with its headquarters in Japan. The company is well-known for the largest volume of sales in the US. However, since 2009, Toyota has been facing a downward trend in sales of auto parts. Between January 2009 and January 2010, Toyota’s sales dropped by nearly 8 percent (Durbin and Strumpf, 2010). This was due to an ‘issue of recall’ of some of the car models that had been introduced in the US market previously. There were complaints with the floor mats in the car and sticky pedals that caused unintended acceleration (Cole, 2011). Since these problems persisted for some time, it raised doubts in the minds of the customers regarding quality standard of the products manufactured by the company (Mehri, 2006). Reduction in trust of customers on the brand could be seen from the falling rates of recommendation received by the models of Toyota. From 85 percent recommendation received in 2008, the rate fell to 73 percent in 2009 (Cole, 2011). This increased level of public scrutiny and media attention on the company. Therefore, decision makers in the company identified this issue as the most important issue that requires attention currently. They have taken steps to resolve this issue strategically. The company has made some serious efforts to cope with this current strategic issue. These efforts are described below: As an immediate response, the company has focused on manufacturing and promotion of a few selected brands that has a good track record of sales (Linebaugh and Sanchanta, 2010). Higher focus has led to improvement of product quality that acts as a strong motivation among loyal customers of the company as well as those customers that have purchased cars of this brand previously. In order to control the problem of inventory, Toyota has also downsized its production for the current year. Since the offshore market for Toyota is not generating high revenue (due to fall in trust of the consumers and lack of recommendation), the company has decided to concentrate on development of the US market. Higher attention to quality control has helped in improving the quality of the company’s products. The company has also focused on providing better service to then customers by maintaining good customer relations and providing after sales service at free of cost or low charge (Ray, 2010). Additionally, the company has launched programs to enhance employee skills at the management level to ensure better supervision on the company’s operations and improve overall performance of the company (Goldman, 2012; Kageyama, 2013). Reference List Aziz, J., 2006. Rebalancing China's economy: What does growth theory tell us? Washington DC: International Monetary Fund. Cole, R.E., 2011. What really happened to Toyota? MIT Sloan Management Review, Summer 2011. Dessy, M., 2010. How can we create the right organizational context to sell environmental sustainability as a strategic issue to top management? Berlin: GRIN Verlag. Durbin, D-A. and Strumpf, D. 2010. Ford January 2010 Sales Climb 25 Percent, Buoyed By Toyota Recall. [online] Available at: < http://www.huffingtonpost.com/2010/02/02/ford-january-2010-sales-c_n_446178.html > [Accessed 23 August 2013]. EIU, n.d. Towards The Recovery: Challenges And Opportunities Facing Asia's SMEs. [online] Available at: < http://www.eiu.com/site_info.asp?info_name=eiu_fedex_recovery&page=noads > [Accessed 23 August 2013]. Goldman, R., 2012. Toyota Agrees To $1 Billion Settlement In Acceleration Case. [online] Available at: < http://abcnews.go.com/Business/toyota-agrees-billion-settlement-acceleration-case/story?id=18069667 > [Accessed 23 August 2013]. Huff, A. S. and Jenkins, M., 2002. Mapping strategic knowledge. California: SAGE. Jauch, L. R., 2010. Business policy and strategic management. Noida: Frank Brothers. Kageyama, Y., 2013. Toyota Opens Training Facility. [online] Available at: < http://www.journalgazette.net/article/20130729/BIZ/307299960/-1/BIZ09 > [Accessed 23 August 2013]. Lee, W. L. and Holmes, C., 2013. Mobility in Manufacturing: Toyota Autoparts Case Study. [online] Available at: [Accessed 23 August 2013]. Linebaugh, K. and Sanchanta, M., 2010. Toyota Has A Fix For Stuck Pedals. [online] Available at: < http://online.wsj.com/article/SB10001424052748704878904575030502640083756.html > [Accessed 23 August 2013]. Megginson, W. L. and Smart, S. B., 2002. Introduction to corporate finance. Connecticut: Cengage Learning. Mehri, D., 2006. The darker side of lean: An insider's perspective on the realities of the Toyota production system. Academy of management perspectives, 20 (2), pp. 21-42. Pettis, M., 2013. The great rebalancing: Trade, conflict, and the perilous road ahead for the world economy. New Jersey: Princeton University Press. Ray, T., 2010. Toyota Climbs On Pedal Fix, But Losses May Stick. [online] Available at: [Accessed 23 August 2013]. Tan, Y, Shen, L. and Langston, C., 2012. Competition Environment, Strategy, and Performance in the Hong Kong Construction Industry. Journal of Construction Engineering and Management, 138 (3), pp. 352-360. Read More