Hybrid car production TOYOTA, cover area: MICROECONOMIC ANALYSIS: a) Explain relevant demand supply factors affect sales profitability chosen product/company. b) Explain market structure chosen company operates chosen product.
Hybrid car production in Toyota
The contemporaneous society is marked by a wide array of challenges, such as raising international tensions, political instability in the countries with high reserves of oil, the depletion of the natural fossil fuels, the damaging of the natural environment or the internationalized economic crisis. In this setting, automakers across the globe strive to create vehicles that rely on more responsible and renewable sources of energy. Such is the case of Toyota, which now creates its Hybrid car in an effort to support environmental change and sustainability, as well as answer to the changing needs of the customers. In this context, the current project sets out to analyze the company and the product through the lenses of microeconomics and macroeconomics. In terms of the microeconomic analysis, emphasis is placed on five distinctive factors:
(1) Supply and demand;
(2) Market structure;
(3) Future actions;
(4) Impacts of elasticity; and last
(5) Resource efficiency.
At the level of supply and demand concepts, the Toyota Prius is currently in a stage at which the demand exceeds the offer. The vehicle is currently the most popular and best sold hybrid car in the world, and the demand for it continues to increase. Still, the supply offered by Toyota is lower than this demand. The supply increases as a result of changes in consumer behavior, resulted from changes at the global level, such as increasing oil prices. Toyota is however unable to serve this demand and this inability is due to company features, such as inability to increase production at a fast rate, but more recently, also due to the earthquake of 2011 (Ohnsman, 2011).
Toyota operates in a highly competitive industry, one that is important as it represents a key driver of the economy. The products sold represent acquisitions to be used within the medium and long-term by the users, and the purchase decision is often complex. The industry is interconnected with other industries, and this relationship has been best observed in the context of the crisis, when car sales dropped as the real estate sector was negatively impacted. The industry is growing and developing at a rapid pace, and it engages large amounts of money for research and development. The competition in the industry is cutthroat and it is also labor and capital intensive. The industry is often perceived as an oligopoly, with the power being detained by a few companies worldwide (Kutlu and Avcioglu). Toyota is one of these companies.
Toyota had historically been unable to compete with the American automobile markers, or the reputable German automobile makers. The company was initially perceived as uncompetitive, but it remained consequent in its business operations and it gained its success and strong position within the market structure as a result of a combination of forces, including: sustained investments in research and development; the ability to understand the changing environment and the changing needs of the customer base; as well as flexibility and adaptability to the identified changes. Where the American automakers were trying to sell large size and luxurious vehicles, the Japanese company was selling small size and fuel efficient engines. The recommendation then is for the company to continue to remain alert to the changes in the micro and macro environments and to adapt to them.
An important aspect of the business strategies that impact the pricing decisions and the competitiveness of the company is represented by the various concepts of elasticity. For instance, the company would expect for an increase in the demand for the Toyota Prius to be responded to with an increase in the price of the vehicles, so that balance is created between supply and demand, and also so that the company can capitalize on the demand and register higher profitability rates. Nevertheless, at this stage, it must also consider the principles of the supply elasticity and refrain from increasing prices too much, as this could result in a dramatic decrease in demand. Vice versa, a decrease in demand could be reacted to with a decrease in retail prices.
Finally, at the last level of the microeconomic analysis, the emphasis falls on the efficiency with which the Japanese automaker is using its resources. Toyota is one of most environmentally sustainable firms in the international community and its commitment to resource efficiency is relentless. “Toyota Motor Sales USA Inc. is a highly emulated model showing how companies can slash their energy costs, enhance efficiency, and boost sustainability by investing the necessary time, effort, and resources. Other companies look to Toyota as an example because it has created a strategic management approach that produces long-lasting, effective results” (Trade Line, 2007).
In terms of the macroeconomic analysis, this revolves around the identification of the means in which fluctuations in five specific indicators impact the success of Toyota. These five factors refer to the following:
(1) Economic growth;
(2) Unemployment;
(3) Inflation;
(4) The balance of payments; and last
(5) The business cycle.
Regarding the economic growth, a fast rate of economic growth generally translates into an increased access to financial resources, including borrowed funds, on the part of the buyers. These have an increased access to jobs and capitals, and they enjoy increased living standards and disposable incomes. Additionally, in times of economic growth, lending is more accessible. In such a setting then, the demand for the Toyota automobiles would be increased. In a different situation of stagnant or negative economic growth, the company would be faced with a decrease in the demand for its products, and as such a decrease in its profitability rates.
At the level of unemployment, this factor generates two important impacts upon the company. The first refer to its labor cost, and the second refers to the demand for its products. In this order of ideas, high levels of unemployment among the working population translate into an increased access to skilled labor force, at lower prices. In other words, the company enjoys a decrease in its personnel costs. In times of low unemployment, the company’s costs with the labor force would increase. Then, in terms of the product demand, this reveals an indirect relationship with the unemployment rate. Specifically, a high unemployment rate indicates decreased spending abilities among the population, and subsequently, a decreased demand for the Toyota automobiles. Vice versa, a low unemployment rate is indicative of a higher access to funds, and as such an increase in the demand for the company’s products, materialized in higher success rates for the firm.
In terms of inflation, this also reveals an indirect relationship with the success of the firm. In a different formulation, when inflation is increased, the demand for the company’s products would be decreased. In such a situation, the retail prices for the Toyota automobiles would gradually increase throughout an undetermined period of time, and they would become less accessible to the public. In the same time, the salaries of the population could also increase, yet at a slower rate. In a context of decreasing inflation however, the retail prices of the products and services sold within a market would decrease. The population would as such register an increase in their spending powers, and this would translate into an increase in the demand for the Toyota products. In such a setting, the firm would be presented with higher chances of success, pegged to higher sales volumes, and as such, higher profitability rates.
The fourth factor in relationship to which to assess the success of the company is represented by the balance of payments, which represents the assessment of the money exchanged by a country as a result of trade operations. Specifically, it reveals the imports and exports in which the country has engaged and it reveals how much money the country has paid on imports and how much it had gained on exports. When the balance of payments is negative, the country is paying more for imports, and when the balance of payments is positive, then the country is receiving more as a result of its exports (Investopedia, 2012). In the particular case of Toyota, the negative balance of payments indicates low levels of profitability, as the population had spent less on the domestic products, comparative to foreign items. Vice versa, the positive balance of payments indicates that the company had registered higher levels of sales within the domestic market sector, and its success rate is as such increased.
Finally, the last factor in the macroeconomic analysis is represented by the business cycle. This business cycle refers to the stage of business development, in a context in which this business development is cyclic, and undergoes several stages. In this order of ideas, within the stages of economic growth, the demand for the products would be increased and the success of the firm would be increasing. Throughout the maturity stage, the demand for the Toyota automobiles would be stagnant, yet constant and reliable; the success of the firm would be a mature one, without major changes. In times of economic hardship however, the demand for the products would decrease and the firm would becomes less profitable, and as such, less successful.
All in all, Toyota is one of the largest global corporations, and its ability to couple its internal strengths to cease the external opportunities has propelled it to become a leading firm of the international automobile industry. Despite its evolution and strength consolidation, the firm continues to remain sensitive to a wide array of forces from both the micro and well as the macro environments. In this context, the recommendation is for the company to continue to capitalize on its strengths, and to continually assess the market and the industry in order to identify and adapt to new situations.
References:
Kutlu, E., Avcioglu, Z., Automotive industry, Dokuz Eylul University, http://www.kisi.deu.edu.tr/sedef.akgungor/auto.ppt last accessed on March 9, 2012
Ohnsman, A., 2011, Toyota’s ability to satisfy Prius demand hindered by quake, Bloomberg Businessweek, http://www.businessweek.com/news/2011-03-31/toyota-s-ability-to-satisfy-prius-demand-hindered-by-quake.html last accessed on March 9, 2012
2007, Toyota lowers energy costs and increases sustainability with FIRM (facility integrated resource management procedures bottom line results), Trade Line, http://www.tradelineinc.com/reports/55874F41-2B3B-B525-8149DF676325D181 last accessed on March 9, 2012
2012, Balance of payment — BOP, Investopedia, http://www.investopedia.com/terms/b/bop.asp#axzz1obwPD3Lf last accessed on March 9, 2012
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