IHS Global Insight Perspective | |
Significance | Toyota has unveiled its new corporate vision called "Toyota Global Vision", which will act as a guide for the company until 2015. |
Implications | The Japanese automaker aims to achieve operating margin of 5% of its sales "as soon as possible". In order to achieve that the company will primarily focus on strengthening its product quality, improving vehicle line-ups and strengthening presence in emerging markets. |
Outlook | Toyota no longer seems to be in a numbers race and looks less concerned about maintaining its global market leadership. The company believes its ongoing focus on quality and products will drive its sales volume in coming years. |
Toyota has unveiled its corporate vision called "Toyota Global Vision", a medium-term strategy that will guide the company's growth until 2015. The vision has been developed by a team headed by president Akio Toyoda and takes its cue from the lessons learned from the automotive industry slowdown following the global economic and financial crisis, as well as from the recalls of millions of its vehicles worldwide over the last year or more. While unveiling the vision, Toyoda said that "all 300,000 of us [employees] at Toyota worldwide will take part in laying a foundation for sustainable growth. Working side by side, we will strive to earn smiles by exceeding customers' highest expectations".
Toyota has set a goal to achieve consolidated operating margin of 5% of its sales revenue "as soon as possible", through implementing strategies outlined under the new corporate vision. Toyota aims to generate JPY1 trillion (USD12.1 billion) in operating income at unit sales volume of 7.5 million vehicles and at the current exchange rate of JPY85:1 USD. The automaker also aims to restore standalone profitability in Japan as quickly as possible. In order to meet its financial goals Toyota will primarily focus on improving its product quality, expanding its line-ups of hybrid and electric vehicles and strengthening its presence in emerging markets.
Major Highlights of "Toyota Global Vision"
- Toyota will focus on improving its overall product quality. The company will concentrate on improving design and feel of the Toyota models in order to attract new-generation buyers. The company plans to launch more exiting vehicles in future in order to attract new generation buyers.
- The company will position Lexus as what it terms as a "truly global" premium brand through strengthening its product quality and adding value. The company intends to increase reach of Lexus models in emerging markets and expand sales and distribution network of the model in the markets where it is already present.
- Toyota will expand its hybrid line-ups, with a plan to introduce about 10 more models by 2015. The company will continue to expand range of alternate-drivetrain powered vehicles through developing a full-range of plug-in hybrid vehicles, pure electric and fuel-cell vehicles. In addition, the company will continue to focus on improving fuel efficiency in its conventional gasoline (petrol)-powered vehicles.
- Toyota intends to make most of its available capacities at its facilities in Japan. In the domestic market, the company plans to manufacture hybrid vehicles at more facilities as part of its strategy to improve manufacturing efficiency. The company also plans to improve productivity at its existing facilities in North America and Europe. In addition, the Japanese automaker will invest in increasing capacity in emerging markets, after carefully analysing demand potentials in each region.
- Toyota will focus more on emerging markets in order to balance its sales portfolio among Japan, the United States, Europe and emerging markets. The company has set a goal to achieve 50% of its sales from emerging markets, up from 40% currently. In order to increase vehicle sales in emerging markets the company will launch more customised products that meet the local requirements.
- The company plans to build a global framework in which the global headquarters will provide overall direction and support for the initiatives taken by the regional operations and while the latter will be entrusted with the power to how serve the local customers in best manner.
Executive and Organisational Changes
Toyota announced comprehensive executive and organisational changes in order to realise goals set under "Toyota Global Vision". The planned changes will become effective from the beginning of next month, is expected to help in speedier decision making at the Japanese automaker. The Japanese automaker has decided to reduce number of directors in its board to 11 from 27 currently. The redesigned board will comprise a chairman, a president, five executive vice presidents and four officers responsible for business development, accounting and external affairs groups. The company has also decided to change its current three-tier executive decision-making system—comprising executive vice-presidents, chief officers and officers responsible for group affairs—into a two-tier one by eliminating officers responsible for group affairs. It has also decided to eliminate the position of senior managing directors after it gets approval at its shareholder general meeting scheduled in June this year. This will reduce the total number of executives from 77 to 60. The company plans to increase the number of executives stationed outside Japan from 13 to 15. In addition, Toyota plans to decentralise decision-making, giving more powers to regional offices, in order to better respond to challenges and opportunities in a specific region. The regional chief officers, who currently sit in Japan, will be stationed in their respective regions. The company plans to set up regional advisory committees in North America, Europe and Asia. Toyota has announced a several executive changes, effective 1 April 2011. Several key employees, including former president and current executive vice-chairman Katsuaki Watanabe, will resign from their current posts.
Outlook and Implications
This is the first major strategy announced by Toyota under its current president Akio Toyoda. The strategy clearly outlines two major focus areas for the next five years—improving the quality of its products and increasing presence in emerging markets. The Japanese automaker continues to face severe quality issues since the second half of 2009 and has recalled nearly 20 million vehicles worldwide due to several technical problems during this period. With focus on quality, Toyota intends to regain lost trust and confidence of its customers. It will primarily focus in two critical areas of improving safety and developing more "green" vehicles. After coming in for severe criticism due to unintended acceleration, Toyota decided to equip its cars in the US with the brake overriding systems.
Toyota will continue to strengthen its line-up in alternate drivetrain powered vehicles, including hybrid and electric vehicles. The company recently reached three million units in cumulative hybrid vehicle sales (see World: 8 March 2011: Toyota's Global Hybrid Sales Exceed 3-Mil.-Unit Mark). It has decided to launch 10 new models by 2015, and plans to expand the reach of its hybrid vehicles in order to increase sales volume. Toyota is also planning expand the line-up of its flagship hybrid brand Prius. The company displayed a family of Prius models at the 2011 North American International Auto Show held in Detroit (US) during January this year. The Japanese automaker is planning to launch a Prius minivan hybrid in Japan by the end of this month or early next month. Toyota also plans to launch its maiden all-electric vehicle, for which the company is collaborating with Tesla.
Toyota is expanding its presence in emerging automotive markets in order to have a balance of regional growth. This will reduce the Japanese automaker's dependence on developed automotive markets and strengthen its position in the markets which has been recording high growth. Toyota is investing in new capacity as well as adding capacity in the Brazil, Russia, India, and China (BRIC) regions. In addition the company is investing in other strategically important markets including Thailand and Argentina. In order to increase sales volume in these markets, it is developing products that better suit local requirements. This is a major shift in the company's product strategy which has earlier brought in hit models in Japan or the US to the emerging market. Toyota earlier said that it is developing car which cost JPY1 million or less to cater to the demand of low-price car in the emerging markets. Last year, it launched the Etios' sedan in India which has been well received. It is planning to introduce the model in other markets including China and Thailand after making some modifications. In addition, Toyota is scheduled to launch a compact version of the Etios in India later this year.
Although there were reports in the media that Toyota will set a goal of reaching 10 million unit sales by 2015, the company seems to have deliberately avoided setting any such goals. It has hinted that it is no longer concerned about maintaining its leadership so far as sales volume is concerned, a position which Volkswagen has vocally stated that it aims to take by 2018. The company seems to be more concerned about improving its profitability and therefore has set a goal of achieving 5% operating margin even at unit sales of 7.5 million vehicles. For the financial year ending 31 March 2011, Toyota has set a goal to achieve operating profit of JPY550 billion, of about 3% of sales (see Japan: 8 February 2011: Toyota Reports Increase in Net Profit for First Nine Months of FY 2010/11, Raises Full-Year Outlook Despite Sharp Drop in Q3 Earnings).