The Market entry strategy of Toyota in Chinese urban market

Table of Content

In order to enter the target market smoothly, it is important for an enterprise to choose suitable market entry strategies. Toyota has entered many countries successfully across the world, such as America. To gain sustainable growth, it needs to enter into new market segments. This report chooses Chinese urban areas as the target market of Toyota. It firstly introduces the market intelligence of the Chinese market. The following part is business environment analysis. Then it gives a proposal for the market entry strategy, including market positioning, price and promotion etc.

Entrance mode, operation and human resource policies are also explained. The last part is conclusion. 2. 0 Competition position of Toyota Competitive position refers to the position of an enterprise in the target market and it is an important basis for strategic planning. Toyota has entered Chinese market for many years and its market share grows continually. Its products like Camry, Lexus and Prius are already popular in Chinese market (Buckley & Horn, 2009). In recent years, Toyota has become the top automobile enterprise. The following table is its sales in Chinese market.

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In 2011, its market share in the global automotive market is 10% while that in China is only 4. 3%. Toyota has an ascendant position in China. Table 1: Sales of Toyota in Chinese market | |2007 |2008 |2009 |2010 |2011 | |sales (ten thousand)|49. 9 |58. 6 |70. 9 |84. 6 |89. 5 | (Data source: Toyota, 2011) 3. 0 Market intelligence of the Chinese automobile market Along with its economic growth, the Chinese automobile market develops rapidly in recent years. Since China joined the World Trade Organization (WTO) in 2001, Chinese automobile market capacity has expanded a lot (http://www. caam. org. cn/english/newslist/a101-1. tml, 2012). In 2009, China overtook Japan and America and became the largest car market in the world. In the next few years, Chinese auto sales kept growing. The following figure is the automobile sales in Chinese market from 2006 to 2012. [pic] Figure 1: The automobile sales in Chinese market from 2006 to 2012 (Data source: http://www. caam. org. cn/english/newslist/a101-1. html, 2012) But by 2009, there were just about 48 cars per 1000 people in China, which is just equivalent to American the car ownership level in 1917. As a contrast, the world average of 2007 was 144 cars per 1000 people.

Even if the future Chinese auto market develops slowly, its sales volume still can be improved vastly to reach the average level in the world. In Chinese market, the development of many proprietary brands is still in a state of small scale and poor profit. After-sale service also has not received enough attention. Foreign brands like General Motors, Mercedes-Benz and Toyota and so on have great technical advantages (Elizabeth & Kiyohiko, 2008). In pace with the wealth growth of Chinese urban residents, the Chinese urban market attract the attention of many auto brands. . 0 Business environment analysis of the Chinese auto market To enter into a new market, analysis of business environment is necessary for Toyota. It includes the analysis of political and legal environment, economic environment, social environment, technological environment and natural environment of Chinese auto market (Morschett, Schramm-Klein& Swoboda, 2010). 4. 1 Political and legal environment Automobile industry is a pillar industry for Chinese economy and gets strong policy support from the government (Porter, 2008).

Since China entered into WTO, the import quota administration of automobile products has been canceled and tariffs on imported cars have been reduced continuously. In January 2006, the national development and reform commission required to cancel all the limits on the driving routes of low-emission cars. This directly promote the sales of low-emission cars. From 2009, a series of policies are formulated, which provides a solid foundation for the development of the automobile industry. These policies include the cancel of the road maintenance expense and incentives for scrapping used cars.

The purchase taxes of low-emission cars are also reduced to half. Beside, consumer-protection laws are gradually improved. 4. 2 Economic environment Economic environment here mainly refers to the economic system, economic development level and future economic trends of China. In 2010, GDP of China surpassed that of Japan and China became the second largest economy entity in the world (China Statistics Press, 2012). Even after the financial crisis of 2007, the economy of China still develops at top speed. GDP of average per capita also increased greatly. Table 1 introduces GDP of China from 2007 to 2011.

The improvement of living standard provides the economic basis for Chinese auto market. Table 2: GDP of China from 2007 to 2011 |Year |GDP (billion yuan) |GDP of per capita (yuan) | |2011 |47156. 4 |35199 | |2010 |39798. 3 |29992 | |2009 |34050. 69 |28543 | |2008 |31404. 54 |21792 | |2007 |26581. 03 |18696 | (Data source: China Statistics Press, 2012) Besides, infrastructure construction in urban areas of China also lays a foundation for its automobile industry. Income of urban areas is increase greatly. But at the same time, an increase in the price of petrol improves the vehicle cost. [pic]

Figure 2: Average general income of urban residents in China (yuan) (Data source: China Statistics Press, 2012) 4. 3 Social environment Social environment includes population, customs and religious belief of China (Kaplan & Norton, 2008). China gas a large population, which generates a lot of potential consumers of automobiles. In the meantime, auto consumers pay more attention to brand and their consumption habits have some changes. The attention degree of luxury cars is reduced. Beside, the environment protection consciousness of people is enhanced, which makes more people tend to purchase low-emission cars.

But the traffic conditions restrict the development of the automobile industry. Problems of traffic congestion, traffic jams and insufficient parking space reduce the efficiency of driving cars. Moreover, the loan proportion is far less than that of America, Japan and European countries. The traditional conservative consumption habits constrain vehicle sales. 4. 4 Technological environment Technology environment includes the automobile technical level, automobile technical policies and development trend of automobile technology in China (Lee,Abosag & Kwak, 2011).

Compared with foreign brands, the design and developing ability of self-owned brands is stronger. The quantity and quality of patents owned by domestic enterprises have an obvious difference in contrast to that of multinational enterprises. Along with the emphasis on resources and environment, technologies related to energy conservation and emission reduction are encouraged. New energy auto industry and low-emission auto industry gain the favor of the government. Besides, the network technology provides convenience for supply chain management. 4. 5 Natural environment

The natural environment refers to the natural factors that influence social production, mainly including natural resources and ecological environment (Porter, 2008). The influences of automobiles on resources and environment mainly include two aspects: the decreasing of oil resources and the pollution caused by oil combustion. Natural resources have been exploited and utilized in a large scale to support the rapid development of economics. This leads to dramatic reduction of natural resources. Meanwhile, extensive economy causes serious environment pollution.

Natural environment stimulates the development of smaller-engine vehicles. 5. 0 Market entry strategy of Toyota 5. 1 Positioning Market positioning decides the product type and the target market for an organization (Kaplan & Norton, 2008). To consolidate its market share further, Toyota could choose the urban market of China as the target market of its low-emission cars. According to the analysis above, the improvement of economic conditions increases the purchasing power of people in this target market. The improvement of transport infrastructure also helps to stimulate the purchase behavior of people in urban areas.

Besides, favorable policies and energy saving awareness together make smaller-engine vehicles more attractive to consumers. In a word, Toyota could target its low-emission cars at the urban areas of China. 5. 2 Price Price here refers to the price strategies, including discounts and periods of credit. It is related to the profit and cost compensation of an enterprise (Kaplan & Norton, 2008). For auto consumers in urban areas of China, price is still a sensitivity factor that influences their purchasing behavior. So Toyota should take the low price strategy to attract more consumers of target market in the stage of market entry.

Considering the traditional consumption habits of urban residents, automobile credit should be promoted by the company to encourage the purchasing behavior of consumers at the same time. 5. 3 Promotion Promotion includes all the forms of communication that an enterprises applies to introduce its products, service and concepts (Porter, 2008). Advertising, sales promotion and public relations are common elements of promotion activities. To popularize its products in urban areas of China, Toyota could take various kinds of promotion (Omar et al, 2009). For urban areas, television advertising is quite suitable.

Considering its popularity in China, celebrity endorsements should be applied. Networking channels also cannot be ignored given the spread of the Internet. In concert with advertising campaign, the sales outlets of Toyota could carry out promotion activities to earn the attention of urban residents. Besides, public relation activities such as test drive of new cars, news conference and public donation could be implemented by Toyota. 5. 4 Human resource Human resource refers to the experience, skills and physical strength owned by people in a organization (Morschett, Schramm-Klein & Swoboda, 2010).

To launch its products in Chinese market, the localization of human resources could be appropriate for Toyota. This strategy can firstly take advantages of the Chinese talents and solves the problems of expatriates shortage. Secondly, localization strategy of human resources can help to eliminate barriers of language and culture, which enhances the ability to deal with local governments. Thirdly, this strategy is a good way for Toyota to promote its image in target markets. For a multinational organization, localization of human resources also helps to maintain the stability of the management personnel and improve the work efficiency.

So Toyota could take the localization strategy in human resources. 5. 5 Strategic objectives Strategic objectives are the expectations of the achievements that are obtained through the business strategies of an enterprise (Kaplan & Norton, 2008). It includes the short-term goals and long-term goals. In a short time (3 to 5 years), the goals of Toyota could include becoming a well known automobile company in urban areas of China. At the same time, it is expected to increase its annual sales volume by 20% each year.

Considering the huge potential of Chinese urban market, its annual sales volume is expected to reach 400,000 five years from now. Its operating profit is expected to reach 3 billion yuan in five years. In a long time, the goal of Toyota could be to become the top automobile organization in its target market. 5. 6 Entry mode Market entry mode refers to the ways of entrance after the selection of target market. The joint ventures and merger and acquisition strategy are quite common (ElizabetH & Kiyohiko, 2008). In recent years, Toyota has aimed to accelerate localization and establish its brand image in Chinese market.

In order to save transportation cost and tariffs, Toyota could take the entry modes like joint ventures and merger and acquisition. Considering the large territory of China, these entry modes lets Toyota make use of the existing sales network built by other companies. At the same time, with the assistance of cooperative partners, Toyota can speed up its localization in China. These modes can also help to shorten the return period of investment. 5. 7 Operation Operation here includes the planning, organization, implementation and control of operation process.

Toyota has always been popular with its famous operation mode (Buckley& Horn, 2009). To enter into its target market in China successfully, lean production is still applicable at this point. This helps to avoid the waste of material, time and space and so on. Given the changeability of consumer demand, the research and development of new products should be concerned by Toyota. At the same time, the quality of its products should be strictly tested so that good product image can be maintained. The introduction of management information system is necessary for operation management.

The following figure gives a presentation of lean production mode. [pic] Figure 3: Lean production mode (Data source: Buckley & Horn, 2009) 6. 0 Conclusion Based on the market intelligence and business environment analysis, Chinese urban areas are attractive market for Toyota. As a top auto enterprise, Toyota could target its low-emission cars at the urban market of China. In this market, the low price strategy and the localization of human resources are suitable. The entry modes like joint ventures and merger and acquisition are applicable. Lean production is also appropriate.

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