Strengths:

Strong market position and brand recognition: Toyota has a strong market position in
different geographies across the world. The company's market share for Toyota and Lexus
brands, (excluding mini vehicles) in Japan was 45.5% in FY2012. Similarly, Toyota has a market
share of 12.2% in North America, 13.4% market share in Asia (excluding Japan and China), and
4.3% market share in Europe. In addition, the company holds a 7% share of the Chinese market
and a significant market share in South and Central America, Oceania, Africa and the Middle
East regions. Such strong market position allows the company to gain competitive advantage and
also expand into international markets. In addition, Toyota holds a portfolio of strong brands in
the automotive industry. Thus, the company's strong market position gives it significant
competitive advantage and helps it to register higher sales growth in domestic and international
markets. Strong focus on R&D: Toyota has a strong focus on R&D to expand its product
portfolio and improve the functionality, quality; safety and environmental compatibility of its
products. The company's R&D efforts are directed at developing new products and processes and
improving the capabilities of existing products. The company conducts its R&D operations at 14
facilities worldwide. Strong focus on R&D has helped the company in incorporating newer
features to its existing range of products and also in bringing out latest technologies in the varied
areas. The company's strong focus on R&D allows it to uphold the technological leadership in
most of its product segments. It also enables Toyota to develop innovative products, leading to
strong sales. Extensive production and distribution network: Toyota has an extensive
production and distribution network. Toyota and its affiliates produce automobiles and related
parts and components through more than 50 manufacturing companies in 27 countries and
regions besides Japan. During FY2012, the company produced 7,435,781 vehicles, including

3,940,000 vehicles in Japan and 3,495,000 vehicles across all other manufacturing locations. In
addition, Toyota has an extensive distribution network. While the companys geographically well
spread production base diversifies business risks, its extensive distribution network provides a
wider reach, thus boosting revenues.
Weaknesses:
Product recalls could affect brand image: Toyota has conducted a number of product recalls in
the recent past, which could affect the brand image and overall sales of the company. For
instance, in 2011, Toyota recalled 111,000 models of Toyota and Lexus brands vehicles due to
the damage to elements of the substrate and potential shutdown of the hybrid system. Further in
the year, Toyota recalled 181,000 vehicles in Japan in relation to abnormal noise and oil leakage
that Analysis of Toyota Motor Corporation by Thembani Nkomo may have resulted from slack of
bolts in the sub transmission and the rear wheel differential. In addition, the company was
involved in government investigations related to product recalls. For instance, in February 2012,
the National Highway Traffic Safety Administration initiated a preliminary investigation of a
potentially faulty power window master switch in the driver-side doors in model year 2007
Camry and RAV4 vehicles. This could also result in significant penalties, which could affect the
operational margins. Declining sales in key geographic segments: Toyota witnessed a decline
in its sales in key geographic segments. In FY2012, the company witnessed declining sales
across North America, Asia, Europe and other geographic reasons, which together accounted for
60.8% of the total revenues of the company. Thus, a continuous decline in the company's key
geographic segments could put pressure on the profit making segments and the overall revenues
of Toyota.

Poor allocation of resources as compared to peers: Toyota has low return on equity (ROE) and
return on assets (ROA) compared to its peer companies. The company's competitors such as
Honda Motor and Nissan Motor have more ROE when compared to Toyota. Honda Motor's ROE
was 4.8%, while Nissan Motor's ROE was 8% in FY2012. In contrast, Toyota's ROE was 2.7%
in FY2012. Lower ROE and ROA compared to its peers indicates that the company is not using
the shareholders' money efficiently and that it is not generating high returns for its shareholders.
Thus, poor allocation of resources could hurt shareholder's value and confidence in the long
term. Opportunities:
Growing global automotive industry: The global automotive industry was severely affected by
the economic downturn, with a decline in revenues being recorded in 2008 and 2009. However,
2011 saw a strong rebound which has continued into 2012. According to MarketLine, the global
automotive manufacturing industry grew by 8.9% in 2012 to reach a value of $1,563.9 billion.
The recovery of global automotive industry thus provides Toyota an opportunity to gain more
customers and increase revenues.
Toyota poised to benefit from growing partnership with BMW: Toyota is poised to benefit
from the growing partnership with BMW. In June 2012, BMW and Toyota signed a
memorandum of understanding aimed at long-term strategic collaboration on technological
fields. As part of the agreement, the two companies will partner for the joint development of a
fuel cell system, joint development of architecture and components for a future sports vehicle,
collaboration on power-train electrification and joint research and development on lightweight
technologies. The growing partnership between the two companies is expected to boost the
technological know-how of the companies and may result in the development of new products

thus increasing revenues in the long run. Also, in the short run, the combined partnership will
result in significant synergies and cost-savings, boosting the operational margins.
Strong outlook for the global new car market: The global new cars market has experienced
moderate growth during 2008-2012. However, forecasts suggest this will accelerate to strong
double digit growth during the 2012-2016 periods. Thus, the strong outlook for the global new
car market coupled with the companys new product launches provides a growth opportunity for
the company.
Threats:
Intense competition: The worldwide automotive market is highly competitive. Toyota faces
strong competition from automotive manufacturers in its various markets. The competition
among various auto players is likely to intensify in light of continuing globalization and
consolidation in the worldwide automotive industry. The factors impacting competition include
product quality and features, the amount of time required for innovation and development,
pricing, reliability, safety, fuel economy, customer service and financing terms. Increased
competition may lead to lower vehicle unit sales and large inventory, which may result in
downward pricing pressure, thus impacting the financial condition and results of operations of
the company.
Appreciating Japanese Yen a major concern: Toyota is sensitive to the fluctuations in foreign
currency exchange rates and is principally exposed to fluctuations in the value of the Japanese
Yen, the US dollar and the Euro. The strengthening of the Japanese Yen against the US dollar and
fluctuations in foreign exchange rates would have a material adverse effect on Toyota's reported
operating results, which in turn would impact the valuation of the company.

Natural disasters could impact production structure: Toyota is subject to disruption of

production due to natural disasters such as earthquakes, floods, among others. Toyota primarily
operates in Japan which is a highest earthquake prone region in the world. The country has
witnessed many devastating earthquakes in the recent years which seriously disrupted the
economy. In 2011, the country witnessed one of the worst hit earthquakes in its history in the
form of 2011 Tohoku earthquake, which led to a temporary production halt at its domestic auto
manufacturing facilities. In the same year, major floods occurred in Thailand which halted its
operations and production of about 150,000 Toyota automobiles. Such natural calamities, if
occur frequently, could severely influence the production output of the company due to work
stoppages and in turn impact the overall revenue base and profitability.

VRIO Framework Analysis Valuable: Yes, because it has been proven to keep production costs low
Rare: Yes, just-in-time production is a popular strategy used by companies in all industries; however,
Toyotas methodology is very rare. Inimitable: Yes, many companies have tried to recreate the system;
however none have been able to do it in as efficient of a manner. Organization: Yes, Toyota has been
using this system since the 1960s and have been perfecting it along the way. Competitive Implication:
This creates a sustained competitive advantage