CASE STUDY-2 TOYOTA AUSTRALIA IN PERIL Q1: What are the various demand and supply side factors affecting Toyota’s profitability. What should Toyota do to address these in order to improve its profitability? ANS- The factors affecting the profitability of Toyota are:- 1-Competitive and fragmented market Australia’s low tariff barriers and highly open trading environment made the automotive market both highly competitive and fragmented. 2- Change in demand Due to global financial crisis, demand for automobiles in developed countries remained subdued due to slow recovery and there was a shift seen to the emerging markets not only geographically but also in terms of composition of demand.
3- Small scale of operations Australia was also a very small player in the global automotive production. The small scale of production kept the average cost of production of vehicles in Australia at a higher level and led to an adverse impact on the scale at which the component manufacturers operated in Australia and the cost at which they could supply the components.
In order to improve its profitability Toyota can look for more open and trade friendly economies and focus on their exports to increase their scale of production. It should look to target developing economies as its new export’s market. Q2: Is Toyota operating at the most efficient level? Should it expand or contract its operations? Given the external conditions, should it continue or exit the market? ANS- Yes, Toyota is operating at the most efficient level. Toyota emerged as the market leader in Australia for the first time in 1991.
It registered record sales of more than 186,000 cars in 2003 and remained the overall market leader for the subsequent 11 years. It also registered a huge success in the export market. A balanced business model and innovative quality products were the keys to Toyota’s past success and had helped to build its brand. Toyota Australia operated with a small scale of operation. This lack of scale at the car manufacturing stage affected even local auto component manufacturers, by keeping their costs higher. Importing cheaper inputs helped Toyota to manage the costs of components. This business model had made Toyota the most successful car brand in Australia. Toyota must continue in the market for the sake of their loyal customers.
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