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Analyzing Porter’s Five Forces in the Context of Toyota’s Organizational Structure in the Chinese Automotive Industry
Toyota Motor, ranked 5th in 2017 Global Fortune 500 (n.d.), achieved 254,694 million USD annual revenue whist facing the similar dynamical environment same as other car OEMs. As one of the most influential frameworks, Porter’s Five Forces may be adopted for “scanning” and yielding for the proposal to its structure design (Porter, 2008/1979). To isolate the character of the environment and avoid interminable analysis to different global market, the paper will focus on the context as Toyota operates in China automotive industry. Item by item, the highly interdependent competitive force is listed as below.
Bargaining power of suppliers (weak). Due to the unique relationship of “Keiretsu” conglomeration, the suppliers inside “Keiretsu” has insufficient bargaining power with the firm. However, like a big family – the group-members enjoy a stable long-term return from solid partnership and the unique equity sharing with the form, e.g., Toyota Motors hold 24.23% in Denso, 24.3% in Aisin (Chairman Mr.KanshiroToyota), 39.2% in Toyota-Boshoku (Chairman Mr.Shuihei Toyota) and 42.84% in Toyota-Gosei – Toyota family even really sent critical persons for the Chairman . Together with the form, almost all of the suppliers have established local facilities / JVs in China for JIT (Just-In-Time) supplying, while carrying over the unique relationship. Also, supplier switching-cost is low, and the integrating forward threats are limited.
Bargaining power of buyers (strong). After 30 years opening and reform, almost all major car-makers has launched China, utilizing the swift cost to end-user – to replace a new car – very low. The information was meant to get those model Spec could be easily approached via APP / internet homepage / dealer handbook.
Rivalry from existing competitors (strong). The 2017 China market share of Toyota brand vehicle including Lexus was 4.8% only, ranked No.5th and far below Volkswagen 12.95% and its global average ratio of 9.2% (Carsalesbase). Not just the global OEMs like Ford / GM but also local brands like Trumpchi / BYD / Haval compete with the aggressive performance. Toyota announced its target ratio in China as “10%” in the annual supplier meeting on 27 March 2018 by one of its JV GTMC in Guangzhou.
Threat of new entry (weak). The government regulation forbids any new entry from traditional gasoline but encourages the new energy like EV / Plug-in EV which calls for a great amount investment in technology, brand, etc. Newcomer like Nio / Proton is low in forecast volume while Tesla differences in price. It’s said that Toyota will introduce Mirai (Toyota Motors, 2018b) fuel cell car into China beside current hybrid technology to heighten the barrier.
Threat of substitutes (middle). In megacities like Beijing & Shanghai, the government restricts tradition gasoline car increase and encourage the car-sharing / public transport / bicycle however on the vast country-side and western province where public transport is still under-development.
Based on above analysis, some proposals could be rose to improve the organization structure. First, utilize TMEC – China tech-center as the main interface to introduce most developed EV and TNGA – Toyota New Global Architecture 2.0 version technology to address the fast-changing environment regulation. Second, allow the design studio currently belongs to R&D center in each JVs independent, to add more “China Factors” into interior / exterior design and change the image of “boring” – indeed recently marketed C-HR is a good sign. Third, to combine the SQE – supplier quality & new supplier sourcing team into a new department to introduce those competitive non-Japanese suppliers into the blocked supplier chain system for VA/VE and continue improvement.
It’s been argued that the force model may be rigid, difficult to assimilate and thus need to be combined / interrelated with other tools like PEST for the application (Grundy, 2006), which I wholeheartedly agree with for any further development.
Reference
Carsalesbase, “China Car Sales Date by Brand”[online], available from: http://carsalesbase.com/china-
Fortune (n.d.), “Global 500 – Toyota Motor”[online], Available from: http://fortune.com/global500/t
Grundy, M., (2006) ‘Rethinking and Reinventing Michael Porter’s Five Forces Model’, Strategic Change, 15 pp. 213-229
Porter, M. E., (2008/1979) ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, January: 23-41 (R0801E)
Toyota Motors (2018a), “2018-02-06 Toyota Motor General Meeting of Sharehoders Presentation” [online], Available from: http://www.toyota.co.jp/pages/
