How does Toyota Prius gain from Globalisation

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Globalisation is the growth of a business to a worldwide scale. This allows them to trade anywhere in the world due to advancing technology and greater openness. This has made it easier for firms to buy their supplies from a wider range of businesses and sell their products anywhere in the world. Different governments and businesses have different views; many believe that freer trade between nations will offer prosperity and growth for all countries and businesses.

The Toyota Prius is a hybrid electric car, developed and manufactured by Toyota Motor Corporation. The Prius was the first mass produced hybrid vehicle and was first sold in 1997 in Japan. It was later introduced worldwide in 2001. The Prius is sold in more than 40 countries and regions, with its largest markets being those in Japan and North America. Toyota announced in 2007 that it had sold 1 million hybrid vehicles globally, and 757,600 of those were Prius.

According to the United States Environmental Protection Agency, the 2008 Prius is the most fuel efficient car sold in the U.S. The UK department for transport also reported the Prius to be one of the least CO2 emitting vehicles on sale in the UK.

The Prius has had a global effect as it has reduced CO2 emissions by 4.5 million tonnes as compared with the conventional vehicles they have replaced.

Demand for the Prius in 1997 was low, because the product was innovative; Toyota used the creaming/skimming pricing strategy which meant that the price of the product was too high. Customers were unsure with the service that it would provide and were happier buying the usual. The Prius wasn’t mass produced which also made the costs of production too high, and that meant that Toyota were not able to cut prices and pass savings onto their customers when the demand was low. The creaming/skimming pricing strategy was used to maximise profits, so that the initial cost of research and development could be covered and because the product was innovative customers could not see what the price of similar products were in the market and therefore had to pay the price that Toyota charged. This allows Toyota to gain a high profit margin and also allows them to break even and start to make a profit faster as they do not have to sell as many units.

Appendix 1 (the table) compares the differences in between cars from across the global market. Appendix 1 shows that the Toyota Prius is the most fuel efficient car in the market at that price. The creaming/skimming pricing strategy is no longer used and as other businesses have entered the market, to gain a competitive advantage Toyota has used cost leadership.  This can be used by Toyota because they have established a strong brand reputation in the market for hybrid vehicles and because they have a greater mass production rate, they can benefit from economies of scale through cheaper raw materials and they can afford to pass savings onto customers and still make a large profit. Other businesses cannot afford to mass produce and therefore Toyota may be able to outcompete them as they do not have a strong reputation like Toyota in hybrid vehicles. The advantage to Toyota of maintaining a strong reputation is that their production techniques have improved over the years they have a shorter lead time than other businesses that have recently started production in hybrid vehicles. This allows Toyota to make a decision and execute it faster, allowing them to be a step ahead of their competitors.

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Appendix 1 also shows that Toyota, after the success of the Prius, decided to target different parts of the market. This is because they have a more luxurious hybrid vehicle in the form of the Toyota Highlander. The Highlander would be aimed at a higher socio-economic group, which includes higher paid jobs. Toyota hybrid cars accounted for 79% of all hybrid cars sold in June 2006 courtesy of the Highlander’s launch earlier that year. This allows Toyota to maximise profits and also broaden their product portfolio, allowing them to take further risks in the future. Risk bearing economies allows Toyota ...

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