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Toyota’s Five Forces Analysis (Porter’s Model)

UPDATED ONUPDATED ON FEBRUARY 2, 2017 BY EDWARD FERGUSON

A Toyota Ractis
(CP100) as Pikachu car. A Five Forces analysis (Porter’s Model) of external factors in
Toyota’s industry environment gives insight on the company’s strategic direction. (Photo:
Public Domain)
Toyota Motor Corporation faces the significant effects of the external factors in its industry
environment, as shown in this Five Forces analysis based on Porter’s model. These
external factors exert forces on Toyota and influence its strategic direction. Even with the
issues and challenges identified in this Five Forces analysis, Toyota remains one of the top
players in the global automotive industry. Such success represents the company’s ability to
withstand the negative forces in its external environment. However, as indicated in this Five
Forces analysis, Toyota must continue innovating for competitive advantage against other
firms.

This Five Forces analysis of Toyota Motor Corporation identifies the intensities or strengths
of the external factors in the automotive industry environment. Recommendations for
Toyota’s continued success are offered.

Synopsis: Toyota’s Five Forces Analysis

Toyota’s Five Forces analysis shows that the most significant concerns are competition and
the bargaining power of customers, which are the strongest external factors in the
automobile industry environment. The following are the five forces and their intensities in
impacting Toyota:

1. Competitive rivalry or competition (strong force)

 2. Bargaining power of buyers or customers (strong force)
3. Bargaining power of suppliers (weak force)
4. Threat of substitutes or substitution (moderate force)
5. Threat of new entrants or new entry (weak force)

This Five Forces analysis shows that Toyota must focus on ensuring competitive advantage
to withstand the strong force of competition. In addition, Toyota needs to maximize its ability
to satisfy the preferences and expectations of customers, who also exert a strong force on
the business and the automotive industry.

Competitive Rivalry or Competition with Toyota (Strong Force)

Toyota must deal with the strong force of competition. This component of the Five Forces
analysis determines how firms affect each other. In Toyota’s case, 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.

Bargaining Power of Toyota’s Customers/Buyers (Strong Force)

Toyota’s customers directly affect the business through revenues. This component of the
Five Forces analysis shows the influence of buyers on business. In Toyota’s case, the
following external factors are the main contributors to the strong force or bargaining power
of buyers in the automotive industry environment:

 Low switching costs (strong force)

 High quality of information (strong force)
 Moderate substitute availability (moderate force)

The low switching costs mean that customers can easily change from Toyota to competing
firms at no extra cost. This change typically happens when customers buy a new car. In
addition, Toyota’s customers can easily choose their best option because they have access
to accurate information, such as product information from companies’ websites. Substitutes
are available, although cars from firms like Toyota are still better in terms of convenience. In
this part of Toyota’s Five Forces analysis, the combined effect of these external factors is
the strong force or bargaining power of customers. Toyota needs to ensure that its products
match the preferences and expectations of its target customers.
Bargaining Power of Toyota’s Suppliers (Weak Force)
Toyota’s suppliers aim to influence the firm to improve their businesses. This component of
the Five Forces analysis reflects the interactions between firms and their suppliers. In
Toyota’s case, the following external factors in the automobile industry environment
contribute to the weak force or bargaining power of suppliers:

 Moderate population of suppliers (moderate force)

 High overall supply (weak force)
 Low forward integration of suppliers (weak force)

The limited population of suppliers around the world creates a moderate force that
influences Toyota. Theoretically, this bargaining power is higher when the suppliers are
fewer. However, the high availability of supply used for manufacturing Toyota’s products
weakens suppliers’ power. In addition, majority of suppliers in the global automotive industry
do not have forward integration or ownership and control of the distribution of materials that
reach firms like Toyota. Thus, this part of Toyota’s Five Forces analysis highlights the
company’s relative ease in addressing the weak force or bargaining power of suppliers.

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.

References

 Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard
Business Review, 88(5), 28-29.
 Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), 32-45.
 Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces
model. Strategic Change, 15(5), 213-229.
 Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.
 Toyota Motor Corporation (2015). Figures.
 Toyota Motor Corporation (2015). Toyota’s Strategy for Environmental Technologies.
 Toyota Motor Corporation Annual Report 2015.

A Five Forces Analysis of Toyota:

Toyota Motors is among the world’s biggest vehicle makers even if not the biggest one after

being toppled by Volkswagen.  However, that has diluted Toyota’s spirit because it is an

aggressive brand and in a mood to grab its position back. It is a global company known for

technological innovation and excellent models of cars. Known for its technological leadership

the brand is also investing heavily in automated driving to be the first. Toyota has also released

Toyota Prius, the world’s bestselling hybrid car. However, while Toyota is one of the best known

brands of vehicles in the world, there are several forces in the environment that affect its

business. The Porter’s Five Forces model is an analytical tool that helps analyse the

attractiveness of any industry.  These forces affect the state of competition and competitive

strength of any brand and are important for strategy formulation. Check out this Porter’s five

forces analysis of Toyota Motors:

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. Generally these suppliers are small or moderate in size and

that reduces their ability to integrate forwards. Thus, the chances of any competition from the

suppliers for Toyota are nil. Moreover, due to the high number of suppliers, there are a large

number of options before Toyota. It can always switch to a new supplier without any trouble.

However, for any of its suppliers, it can mean a major loss of business.  All these factors give

Toyota better control over the suppliers and their bargaining strength remains low.

Bargaining strength of customers: Strong

The bargaining strength of the customers in the vehicles industry is high. The customers have

several options before them and switching costs are also low. There are competing firms that

offer similar products at similar prices. Every customer is a highly informed customer and free to

make his own choice.  Hey can easily find information and select the most suitable option for

them.  All these factors increase the bargaining strength of the customers of the buyers of

Toyota. Whatever bargaining strength Toyota holds is because of technological and design

innovation. Based on these things, it has acquired an impressive level of customer loyalty.

However, this force gets countered by the formidable level of competition in the industry.

Threat of substitutes: Moderate

The threat of substitutes before Toyota is moderate. From vehicles made by other brands to

public modes of transportation, there are several substitutes for the Toyota products. The

switching costs are also quite low and in several areas people may find it more convenient to use
the substitutes. Moreover, for the middle class and lower middle class consumers often the public

mode of transport proves less costly. To moderate this threat, Toyota has released models that

are low on fuel consumption, good for the environment and the smaller family cars are also less

costly. All these factors counter the threat of substitutes but only to a little extent. Overall, the

threat of substitutes is moderate.

Threat of new entrants: Weak

The threat of new entrants is a very weak force in the automotive industry. First of all there is a
very large capital investment involved in the foundation and management of an automotive
brand. Any new brand trying to enter the automotive industry would need to spend a lot on
supply chain, distribution system, marketing and hiring skilled human resources. Without
differentiation and innovation it would be difficult to grab a market share. Both the entry and exit
barriers are big. The incumbent firms can exploit economies of scale and are in a position to
create immense pressure on new entrants based on their competitive advantages. Moreover, for
any new entrant to grow its market share, it would have to spend a lot on marketing and
promotions. All of these factors create major obstacles in the path of any new brand trying to
find foothold in the automotive industry.
Competitive Rivalry in the Industry: High
While the number of major global players in the automotive industry may be small, still the level

of competition among them is high.  The firms are highly aggressive in terms of business and

marketing. 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.  Some of the competitors of Toyota include Ford, Hyundai, and Honda among

others. All these forms focus heavily on passenger convenience and innovation. Overall, eh level

of competitive rivalry in the automotive industry is very high.

CategoriesFIVE FORCESTagsautomobiles, Toyota, Toyota MotorsPost navigation

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Apple Value Chain Analysis

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He

graduated with a Hons. in English literature from BRABU and an MBA from the Asia-

Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge

and research in business management, marketing, literature and other areas with his

readers.

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Porter Five Forces Analysis (Porter Model) of Toyota Motors

 adamkasi

1 year ago

It works ha 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 is involved in
continuous innovation and use advance technologies to provide the consumer
best experience. rd to compete in the industry where big giants like Honda,
BMW, Audi, etc. are present. 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. Various
challenges and issues are identified, yet Toyota is able to remain at the top
position in the industry of global automation. This success clearly shows the
ability of the company to withstand among the negative forces (Ferguson,
2017). Here is the detailed five forces analysis of Toyota;
Bargaining Power of Buyers:
The customers of Toyota are directly affecting the business operation through
revenues. Consumers have low switching costs, as if they find any product
expensive, they can easily switch to the competitor’s products. Customers have
high bargaining power in case of Toyota, because of the high amount of
knowledge they have regarding the purchases they make. 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).
Bargaining Power of Suppliers:
The bargaining power of the suppliers is insignificant in the automotive
industry because of the numerous amounts of suppliers’ presence of different
parts, and the significance of volumes for many suppliers are paramount. 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).
Threats of New Entrants:
Barriers to entry in the automotive industry are high, which means threats of
new entrants are very low, because of high capitalization and the access to the
distribution channels. Substantial barrier is created because of the extensive
use of economies of scale by the existing brands in the industry. Particularly
for Toyota, because of the its market size and operating in international
market, it can greatly achieve economies of scale and passed the benefits to
consumers in terms of reducing the vehicles’ prices and compete in the
industry. Furthermore, its products are differentiated, and has the strong
band name.  Government rules and regulations are also one of the factors
which restricts the new entrants in the industry (Ferguson, 2017).
Threats from the Substitute Products:
In many cases, consumers find easy to switch to substitute products like public
transportations, bicycles, etc. but they also have limitations, as such
substitutes are not present in suburban areas. In such cases, Toyota is facing
low threats from the substitute products. However, in areas where different
auto manufacturers are operating, the risks of substitution increase because
customers might shift to other brands as per their convenience. Thus,
automobile industry brings moderate threats for the brands in the substitution
of the products, and to compete in such case, Toyota needs to make its
vehicles affordable, convenient, and accessible (Ferguson, 2017).
Rivalry of Existing Players
Competition from the existing firms in the automotive industry is aggressive,
as in global marketplace, there are many competitors like General Motors,
Daimler, Volkswagen, BMW Group, Ford Motors, Honda Motor, Hyundai
Motor, Nissan, SAIC Motor, Audi, and many others are present to compete
against Toyota. Although the Toyota Motors is maintaining the leadership
position globally in sales, but still GE has highest market share in United
States because of the US government policies (Dudovskiy, 2016). Toyota has
the advantage of differentiated products, and new product designs in the
industry, which is not easy to beat (Fernfort university, 2019). 
References
Dudovskiy, J. 2016. Toyota Porter’s Five Forces Analysis. [Online], Available
at: https://research-methodology.net/toyota-porters-five-forces-analysis/,
[Accessed on: 11th April, 2019].
Ferguson, E. 2017. Toyota’s Five Forces Analysis (Porter’s Model). [Online],
Available at: http://panmore.com/toyota-five-forces-analysis-porters-model,
[Accessed on: 11th April, 2019].
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, [Accessed on:
11th April, 2019].
Toyota, 2019. About the Company. [Online], Available
at: https://global.toyota/en/company/profile/, [Accessed on: 11th April,
2019].

Porter Five Forces Analysis (Porter Model) of Toyota Motors

 adamkasi

1 year ago
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 is involved in continuous
innovation and use advance technologies to provide the consumer best
experience. It works hard to compete in the industry where big giants like
Honda, BMW, Audi, etc. are present. 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.
Various challenges and issues are identified, yet Toyota is able to remain at the
top position in the industry of global automation. This success clearly shows
the ability of the company to withstand among the negative forces (Ferguson,
2017). Here is the detailed five forces analysis of Toyota;
Bargaining Power of Buyers:
The customers of Toyota are directly affecting the business operation through
revenues. Consumers have low switching costs, as if they find any product
expensive, they can easily switch to the competitor’s products. Customers have
high bargaining power in case of Toyota, because of the high amount of
knowledge they have regarding the purchases they make. 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).
Bargaining Power of Suppliers:
The bargaining power of the suppliers is insignificant in the automotive
industry because of the numerous amounts of suppliers’ presence of different
parts, and the significance of volumes for many suppliers are paramount. 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).
Threats of New Entrants:
Barriers to entry in the automotive industry are high, which means threats of
new entrants are very low, because of high capitalization and the access to the
distribution channels. Substantial barrier is created because of the extensive
use of economies of scale by the existing brands in the industry. Particularly
for Toyota, because of the its market size and operating in international
market, it can greatly achieve economies of scale and passed the benefits to
consumers in terms of reducing the vehicles’ prices and compete in the
industry. Furthermore, its products are differentiated, and has the strong
band name.  Government rules and regulations are also one of the factors
which restricts the new entrants in the industry (Ferguson, 2017).
Threats from the Substitute Products:
In many cases, consumers find easy to switch to substitute products like public
transportations, bicycles, etc. but they also have limitations, as such
substitutes are not present in suburban areas. In such cases, Toyota is facing
low threats from the substitute products. However, in areas where different
auto manufacturers are operating, the risks of substitution increase because
customers might shift to other brands as per their convenience. Thus,
automobile industry brings moderate threats for the brands in the substitution
of the products, and to compete in such case, Toyota needs to make its
vehicles affordable, convenient, and accessible (Ferguson, 2017).
Rivalry of Existing Players
Competition from the existing firms in the automotive industry is aggressive,
as in global marketplace, there are many competitors like General Motors,
Daimler, Volkswagen, BMW Group, Ford Motors, Honda Motor, Hyundai
Motor, Nissan, SAIC Motor, Audi, and many others are present to compete
against Toyota. Although the Toyota Motors is maintaining the leadership
position globally in sales, but still GE has highest market share in United
States because of the US government policies (Dudovskiy, 2016). Toyota has
the advantage of differentiated products, and new product designs in the
industry, which is not easy to beat (Fernfort university, 2019). 
References
Dudovskiy, J. 2016. Toyota Porter’s Five Forces Analysis. [Online], Available
at: https://research-methodology.net/toyota-porters-five-forces-analysis/,
[Accessed on: 11th April, 2019].
Ferguson, E. 2017. Toyota’s Five Forces Analysis (Porter’s Model). [Online],
Available at: http://panmore.com/toyota-five-forces-analysis-porters-model,
[Accessed on: 11th April, 2019].
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, [Accessed on:
11th April, 2019].
Toyota, 2019. About the Company. [Online], Available
at: https://global.toyota/en/company/profile/, [Accessed on: 11th April,
2019].

Toyota Porter’s Five Forces

Analysis
 By John Dudovskiy

 January 26, 2016

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five
individual forces that shape the overall extent of competition in the industry. These forces are
represented in Figure 1 below. You can learn the theory of Porter’s five forces analysis here.

Figure 1 Porter’s Five Forces

Threat of new entrants into automobile manufacturing industry is low. This is because of a set
of industry entry barriers such as huge amount of capital requirements and access to distribution
channels. Extensive economies of scale enjoyed by current automobile brands is another factor that
creates a substantial barriers for new entrants. In case of Toyota in particular, due to its size and the
global scope of its operations, the company immensely benefits from the economies of scale and
this benefit is passed to consumers to reduce the prices of vehicles and stay competitive. Moreover,
an immense role of product differentiation, expected retaliation from existing auto manufacturers and
certain regulatory barriers in most markets are additional range of factors that reduce the threat of
new entrances to the market.

Bargaining power of suppliers in vehicle manufacturing industry is insignificant. This is

because there is a great numbers of suppliers of various parts and the importance of volume for
most suppliers is paramount. Supplier switching cost for an auto manufacturer varies depending on
the type of supplier and the nature of the product delivered by the supplier. In case of Toyota, due to
its reliance on lean manufacturing and just-in-time supply chain management, suppliers that are
located closely to manufacturing units have greater bargaining power.

Rivalry among existing firms is aggressive. In the global marketplace Toyota competes with
General Motors, Volkswagen, Daimler, BMW Group, Honda Motor, Ford Motor Company, Nissan,
Hyundai Motor, SAIC Motor and others. As it is illustrated in Figure 2 below, although Toyota
maintains a leadership position in the global marketplace in terms of sales, GE has a greater market
share in the US market, partially as a result of protectionism policies of the US government….
 Figure 2 Automobile industry market share in the US

Toyota Motor Corporation Report contains more detailed discussion of Toyota Porter’s Five Forces
analysis. The report illustrates the application of SWOT, PESTEL and Value Chain analytical
frameworks and discusses Toyota’s marketing strategy and company’s approach towards Corporate
Social Responsibility (CSR).