Course Name:- Executive Post Graduate Diploma in Name:- Waseeq Ahmed

Management Registration Number:- 210101618051

Sub:- Marketing Management Ref:- EPG43/AUGUST21/1076
43rd Batch Email:-awaseeqepgdms21@bus.alliance.edu.in

1. Can Toyota Australia be characterized as Oligopoly? Justify your answer by specifying

and comparing the characteristics. What challenges does this market structure pose for
the company? (15 Marks)
Answer: -

Oligopoly Origin: -

The word Oligopoly is derived from two Greek words – ‘Oligi’ meaning ‘few’ and ‘Polein’ meaning ‘to
sell’.

Looking at the above table of automobile manufacturer’s Australian market share by brand, we can
characterize Toyota Australia as “oligopoly” market. First, we need to understand what does “oligopoly”
market means,
A market structure in which a few enterprises dominate is known as an oligopoly, a market is said to be
extremely concentrated when only a few companies are there, although a few large companies dominate
the market, many small businesses may also exists in which none of them keep the others from having
significant influence.
The type of market structure in which Toyota Australia is operating in competitive fragmented market
structure, apart from Toyota Australia there were few other manufactures namely Ford and General
Motors Holden. After General Motors plan to exit, Toyota expressed its fear that it was in peril as
Australia’s low-tariff barriers and highly open trading environment since mid-1980s provided consumers
with easy access to imported cars. Approximately 65 brands and 365 models comprising passenger
vehicles, sport utility vehicles and light commercial vehicles. The competition among the firms helps in
identifying the lucrativeness of an industry where companies are competing hard in order to maintain
their power within the industry. The Toyota in Peril competition is moreover on basis of diversity, the
development within the sector and the barriers related to entrance in the market. Along with other players
in the automotive sector, Toyota also was growingly adverse environment. Below is Toyota business
model.

Characteristics of Oligopoly:-
Below are few characteristics of oligopoly.
Few firms: - Under Oligopoly, there are a few large firms although the exact number of firms is
undefined. In addition, there is severe competition since each firm produces a significant portion
of the total output.
Barriers to Entry: - Under Oligopoly, a firm can earn super-normal profits in the long run as there
are barriers to entry like patents, licenses, control over crucial raw materials, etc. These barriers
prevent the entry of new firms into the industry
Non-Price Competition: - Firms try to avoid price competition due to the fear of price wars in
Oligopoly and hence depend on non-price methods like advertising, after sales services,
warranties, etc. This ensures that firms can influence demand and build brand recognition
Interdependence: - Under Oligopoly, since a few firms hold a significant share in the total output
of the industry, each firm is affected by the price and output decisions of rival firms. Therefore,
there is a lot of interdependence among firms in an oligopoly. Hence, a firm takes into account
the action and reaction of its competing firms while determining its price and output levels
Nature of the Product: - Under oligopoly, the products of the firms are either homogeneous or
differentiate
Selling Costs: - Since firms try to avoid price competition and there is a huge interdependence
among firms, selling costs are highly important for competing against rival firms for a larger
market share.
No unique pattern of pricing behavior: - Under Oligopoly, firms want to act independently and
earn maximum profits on one hand and cooperate with rivals to remove uncertainty on the other
hand, depending on their motives, situations in real-life can vary making predicting the pattern of
pricing behavior among firms impossible. The firms can compete or collude with other firms,
which can lead to different pricing situations.
Indeterminateness of the demand curve: - Unlike other market structures, under Oligopoly, it is
not possible to determine the demand curve of a firm. This is because on one hand, there is a huge
interdependence among rivals. On the other hand, there is uncertainty regarding the reaction of
the rivals. The rivals can react in different ways when a firm changes its price and that makes the
demand curve indeterminate.

Firm’s behaviour under Oligopoly: -

Based on the objectives of the firms, the magnitude of barriers to entry and the nature of government
regulation, there are different possible outcomes in relation to a firm’s behavior under Oligopoly. These
are:
a. Stable Prices
b. Price wars
c. Collusion for higher prices

Further, Oligopoly can be either collusive or non-collusive. Collusive oligopoly is a market situation
wherein the firms cooperate with each other in determining price or output or both. A non-collusive
oligopoly refers to a market situation where the firms compete with each other rather than cooperating.
The Features of the market: -
The features, which adds strength and advantages to the company
the characteristics and situations of the organization which makes it more effective and efficient
By looking at the given data the company is said to hold command and good controls over the
domestic market
The company is said lots of opportunities to look in to the market which by the means of
exporting since Australia has vast area to use
It has low-tariff and high open trading environment

Challenges:-
The company works along with competitive fragment Market Structure
Low demand area with high competition
Small Scale of Operations
Higher cost of Manufacturing
Underutilization of Capacity
Declining Demand
Government Policies

2. What factors are affecting the profitability of Toyota Australia? Which of these factors
can the company control to improve profitability? What strategy would you suggest
improving the profitability? (15 Marks)

Answer: -
Below are the few factors, which are affecting the profitability of Toyota Australia,
a. High cost of production: - High cost of labors and other taxes accounts to the high cost of
production which company tried to reduce by reducing overtime payment on work done on
Sunday from 2.5 times of the base hourly wage to just 2 times.
b. Australia’s low traffic on imported vehicles: - This gives customers an easy access to other
imported vehicles, which affects the sales of Toyota.
c. Other emerging markets: - Because of global financial crisis, the demand in Australia did not
improve and the focus shifted to other emerging markets like south East Asian nations.
d. Free Trade Agreements and Unbalanced Trading Environment: - To improve the trade and
 capital flows, Australia had signed various free trade agreements (FTAs), such as the Thailand–
Australia FTA, the Association of South East Asian Nations-Australia-New Zealand FTA and the
Australia-Gulf Cooperation Council (GCC) FTA. Although the FTAs were expected to result in a
win-win situation for all the countries involved, the FTAs signed by Australia with countries such
as Thailand, Japan and South Korea, had turned out to be bad news for the Australian car industry
e. Change in the demand: - The trend sifted to small and compact fuel-efficient cars, which was
different from the Toyota was manufacturing.
f. Low Production scale: - The small scale of production kept the cost of production high. It also
had impact on the prices of local components required for manufacturing of the vehicles, as it
remained high because of low supply.
g. Government Policies and Declining Protection: - The Australian government had been
following liberal trade policies since the mid-1980s. As a part of the opening-up strategy,
quantitative restrictions were phased out and were eliminated by 1988. At the same time, tariffs
were brought down to 5 per cent by 2010. Though, to help the automotive industry to adjust to
the declining tariff levels, the government provided direct assistance to the manufacturers, it was
linked to investment and to research and development expenditure. Gradually, more and more
government assistance was redirected from the assembly of cars, the least competitive activity, to
exports, the most competitive activity.
h. Currency: - With the Australian dollar strengthening over the USD, and Australia’s primary
export being to GCC countries, and being committed in USD, the overall profitability of its
exports, also declined.

Factors that control to improve the profitability:

Existing the market can be a step to improve the profitability of Toyota as by shifting the
manufacturing plant out of Australia will help avoid the high export tariffs as per the existing
FTAs
Shifting the production to then trending and in demand small and compact fuel-efficient cars
can increase the sales and thereby make it more profitable.
Increasing the sale of production by improving the efficiency and usage of new technological
advancement, which can help increase the number of manufacturing units.
Another option could be to have waited for the situation to become normal, Toyota’s market
share is likely to increase further over time, if particularly, it is able to scale up its production
to meet the demand.
Decreasing the costs of production by lowering the additional labour costs and taxes.

Strategy that can be used to improve the profitability: -

A shift can be made to increase the production, which eventually increase the sales of Toyota,
thereby scale profitability. This could be done by increasing the installed capacity of cars.
If somehow negotiations can happen with the government to reduce the total costs and the import
duties on imported components and pushing for better FTAs.
Negotiating with the worker’s union can help reduce the total costs.
If nothing happens, it might be better for Toyota to exit Toyota.
3. Is Toyota Australia operating at the optimum scale of operation? Should Toyota expand or contract its
scale of operation? What should Toyota do? Should it wait for demand and cost conditions to improve, or
should it exit the market? (10 Marks)

Answer: - Toyota Australia was not operating at the optimum scale of operations because of which they
were incurring losses. Because of several reasons like FTAs, government policies, tariff rates, etc, it
became a necessity to increase the scale of production in order to be profitable. Toyota I order to extract
profits started exporting the manufactured vehicles to other countries like Middle East, South Korea,
Thailand, etc increase their revenue. However, things did not work too well after a time because of the
government policies and export duty. The only way out was to increase the supply that could not lower
down the rates of raw materials as higher the supply lower is the price.
Increasing the scale of production was a key to the profitability, which they could not meet at the
optimum level. Increasing the scale of operation and decreasing the per unit manufacturing cost was their
way out of economic crisis. Increasing the scale of production to 15000 cars per year and decreasing the
cost of production by $3800 per car could have done the work.
Toyota should definitely expand the scale of operation and minimize the cost of production in order to
survive in Australia and to avoid the losses. Else, it is better to leave the Australian market and shift the
production to new fuel-efficient vehicles in another country with more flexible policies.
Increasing scale of production means usage of new efficient technology to increase the efficiency in order
to manufacture more cars. Increasing the supply also means reducing the cost of bought local components
and the rates decrease with increase in supply.
The small scale of production kept the average cost of production of vehicles in Australia at higher level
and led to an adverse impact on the scale at which the component manufactured operated in Australia and
the cost at which they could supply the components.
Decreasing the cost of production incudes, the reduction if salaries and added taxes. High cost of labors
and other taxes accounts to the he high cost of production.
The necessity is to improve efficiency, to reduce the cost of manufacturing cars, to improve
organizational and manufacturing efficiencies and to maximize sales of the manufactured vehicles.
The small scale of production kept the average cost of production of vehicles at Australia at a higher level
and led to an adverse impact on the scale at which the component manufactures operated in Australia and
at the cost at which they could supply the components.
To counteract the impact of adverse external developments for the period 2012 to 2018, Toyota
implemented a companywide transformation project referred as Toyota Australia Future Business.
Transformation 26, the project aimed to improve efficiency to reduce cost of manufacturing cars by
@3800 per car to improve organizational and manufacturing efficiencies and to maximize sales of the
domestically built Camry and Aurion models.
Toyota should aim to support industries and social infrastructures around the world by continuously
supplying products and services that anticipate customers’ needs in order to contribute to engendering a
compassionate society.
In addition to placing top priority on safety, Toyota should thoroughly enforce compliance, including
observance of laws and regulations, and actively participate in social contribution activities.
Toyota should accelerate its business expansion into rapidly growing emerging countries by thoroughly
and meticulously monitoring market conditions in respective regions and introducing products suited to
the characteristics and needs of each market. Toyota should also strive to establish production and supply
structures to realize optimum product pricing and delivery, and to enhance the value chain to provide a
wide range of customer services in each country and region. Toyota should consider making Lexus a
priority in the Chinese market. This will enable it to become competitive with other car manufacturers in
the luxury segment. Increasing production facilities in Asia will enable Toyota to have cheaper delivery
channels and become closer to the emerging market customer. Toyota should also cut out layers of middle
management so that engineers get more authority over what specific customer needs are answered in the
design and development of a new car. Toyota should pursue the development of environmentally
conscious, energy-saving products while incorporating functions and services demanded by customers
(value chain) and delivering them to the global market. Acting on these measures, Toyota should aim for
growth in three business units, namely, “solutions” in the areas of materials handling equipment, logistics,
and textile machinery; “key components” in the fields of car air-conditioning compressors and car
electronics; and “mobility” in the domains of vehicles and engines. To support consolidated management
on a global scale, Toyota should enhance the power of the workplace and diversity in the use of human
resources, and strive to nurture global human resources.