Bargaining Power of Suppliers: Weak

Introduction
Toyota Motors Corporation is the Japan based multinational automotive manufactures. Its
headquartered is in Tokyo, Japan. Toyota is ranked as the second biggest automotive manufacturer
across the globe, and the first one to manufacture more than 10 million vehicles annually. It is the
market leader across the globe in selling the hybrid electric vehicles, as it encourages the mass-market
adoption for such vehicles. It believes in continuous improvement which helps it in retaining the
customers and attracting new consumers (Toyota, 2019). Toyota Motors faces the major effects of
external forces of the industry, as determined in the Porter’s five forces model. These five external
factors help Toyota in analyzing the strategic directions for the company. This success clearly shows the
ability of the company to withstand among the negative forces (Ferguson, 2017). Here is the detailed
five forces analysis :
Bargaining power of suppliers: Weak
The bargaining power of suppliers is a weak force in the case of Toyota. There are several reasons
behind it. Apart from the large number of suppliers, their moderate size is also a reason that they
cannot influence Toyota. The switching cost of the suppliers varies as depending on different types of
raw materials in the auto manufacturing industry. For Toyota, because of its reliance on the just-in-time,
and lean manufacturing supply chain, suppliers are mostly located close to the manufacturing units
usually have high bargaining power (Dudovskiy, 2016).
Bargaining strength of customers: Strong
The bargaining strength of the customers in the vehicles industry is high. Toyota’s customers directly
affect the business through revenues. This component of the Five Forces analysis shows the influence of
buyers on business. However, there are certain vehicles which have moderate amount of substitutes
available in the market like hybrid vehicles, for such products, bargaining power of consumers are low as
they do not have many options to switch (Fernfort, 2019).
Rivalry among the Existing Competitors: high
If the rivalry among the existing players in an industry is intense then it will drive down prices and
decrease the overall profitability of the industry.Considering that the automotive industry represents an
oligopoly (especially in United States) the constant competition for the market share and industry
dominance is prevalent. Continuously increasing competition is fueled by the higher consumer
expectations and anticipation for the lower prices.Apart from technological innovation, these brands
also compete in terms of design innovation and other features like passenger safety and fuel efficiency.
The competition has kept growing intense as most rivals operate in the same markets. This also
increases the cost of R&D and marketing. the following external factors are the main contributors to the
strong force of competitive rivalry in the industry environment:
High aggressiveness of firms (strong force)
High variety and differentiation of firms (strong force)
Low number of large firms (moderate force)
Automotive firms are aggressive against each other in terms of such factors as innovation and
marketing. Also, Toyota competes with a high variety of firms, which differentiate through cost,
electronics, fuel efficiency, style, brand image, and other variables. However, even though there are
many small auto firms, Toyota competes with only a small number of large firms. Still, this part of
Toyota’s Five Forces analysis shows that the company must have comprehensive strategies to address
the strong force of competitive rivalry.
Threat of Substitutes or Substitution (Moderate Force)
Substitutes affect Toyota’s business by competing with the company’s products. This component of the
Five Forces analysis determines the impact of substitute products. In Toyota’s case, the following
external factors in the automotive industry environment are the main contributors to the moderate
force or threat of substitution:
Low switching costs (strong force)
Moderate availability of substitutes (moderate force)
Low convenience in using substitutes (weak force)
In most cases, it is relatively easy for customers to shift from Toyota to substitutes. These substitutes to
Toyota products include public transportation, bicycles and other modes of transportation. However,
these substitutes are only moderately available. In some areas, substitutes to Toyota’s products are
absent, such as in some suburban areas where public transportation is not readily available. In addition,
these substitutes are usually less convenient than using the products of firms like Toyota. In this part of
Toyota’s Five Forces analysis, the combination of such external factors in the automobile industry
creates the moderate threat of substitution that Toyota must address by making its products more
accessible, affordable and convenient.
Threat of New Entrants or New Entry (Weak Force)
New entrants are potential competitors that threaten Toyota’s business. This component of the Five
Forces analysis shows the potential impact of new entry. In Toyota’s case, the following external factors
in the automotive industry environment contribute to the weak force or threat of new entrants:
High capital costs (weak force)
High cost of brand development (weak force)
High supply chain costs (weak force)
Toyota faces the weak threat of new entry. The high costs of establishing, maintaining and growing a
new firm in the industry are significant entry barriers. These barriers weaken the effects of new entrants
on companies like Toyota. This force is less significant than competition and the bargaining power of
customers on Toyota’s business. Thus, this part of the Five Forces analysis shows that the threat of new
entrants is among the least of Toyota’s concerns in growing its business and maintaining its positions as
one of the top automobile manufacturers in the world.
Conclusion
Poters five model forces help the company understand what they are dealing with, it helped them
realize how they needed to produce just in time it has helped Toyota to continue being in the top
charts . The model forces help the company understand that there is more to a business besides
production of goods and services it shows the company the relevence of other stake holders like the
suppliers, customers, rivalry, it helps them understand how substitutes and new entries can change the
market.
References
Toyota’s Strategy for Environmental Technologies.
Toyota Motor Corporation Annual Report 2015.
Dudovskiy, J. 2016. Toyota Porter’s Five Forces Analysis. [Online], Available

at: https://research-methodology.net/toyota-porters-five-forces-analysis/
Ferguson, E. 2017. Toyota’s Five Forces Analysis (Porter’s Model). [Online],
Available at: http://panmore.com/toyota-five-forces-analysis-porters-model
Fernfort university, 2019. Toyota Motor Corporation Porter Five Forces
Analysis. [Online], Available at: http://fernfortuniversity.com/term-
papers/porter5/analysis/855-toyota-motor-corporation.php

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Introduction

Bargaining power of suppliers: Weak

Bargaining strength of customers: Strong

Rivalry among the Existing Competitors: high

High aggressiveness of firms (strong force)

High variety and differentiation of firms (strong force)

Low number of large firms (moderate force)

Threat of Substitutes or Substitution (Moderate Force)

Moderate availability of substitutes (moderate force)

Low convenience in using substitutes (weak force)

Threat of New Entrants or New Entry (Weak Force)

High capital costs (weak force)

High cost of brand development (weak force)

High supply chain costs (weak force)

Toyota’s Strategy for Environmental Technologies.

Toyota Motor Corporation Annual Report 2015.

Dudovskiy, J. 2016. Toyota Porter’s Five Forces Analysis. [Online], Available

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