Probability Model in the Analysis of Toyota Motor Company
Probability models are essential in guiding against bets which are counter intuitive. For example, it may appear that group C with a maximum strength of 20 is superior than group D with strength record of 12. But on average strength analysis, it may appear that group D becomes the top with 9 to 8 points. From the previous papers studied, we can determine the probability of Toyota motor company to either succeed or fail in the future by weighing of various critical aspects that company faces in its internal and external environment.
The idea of risk management in world corporations plays a great role. Toyota motor company can incorporate the risk management culture and practices to avoid losses and eventual collapse of the company. Through the type of probability methods known as Bayesian approach, the company can affectingly manage its risk. This is a sophisticated alternative which can solve the challenge of risk management using traditional approach. The probability of the objectivist point of view states that the physical world and aspects related to it have a level and type of risk. Such a probability is determined from the historical data which is repetitive (Siu, Tong and Yang, 2004, pp 161-184).
The use Bayesian or the subjectivist approach considers risks as a judgment part of an observer or the general process that an individual or business takes in decision and observation process. Toyota stands a chance of increasing its success through embarrassing new changes. One of the factors that makes Toyota company stand a chance for future success is the partnering and merging with other related companies.
Considering the effects of global recession that hit most world businesses in 2008, Toyota Company suffered a great loss. Before the global economic recession, Toyota Motor Company was on its way to becoming a leading company in the world in the industry of automobile manufacturing. The resultant bankruptcy that the company faced coupled with the current weather of world economy has lead to lowered demand of the company’s products. As a solution the company decided to adopt the strategy of cutting the costs measures such as reducing the number of employees. It is therefore likely that the company will be faced by the production of substandard and low quality products. The company should instead take the alternative of enhancing the quality of its automobile and raising the value so as to meet its operation cost.
The decision of the company to venture into developing countries seemed at first to be the way forward for the company. Despite the growth of demand for the company’s automobile, the company has raised the price of its products leading to a lowered demand. Sustaining these oversea branches leads to increased expenses because they do not operate autonomously. This leads to losses which the company can solve by reducing the number of its plants to a manageable size.
Another major cause for the company to increase the value of its products is due to the increasing values of Japanese Yen against the Euro and the United States dollar. Toyota Company relies greatly on its global sales but this is not the case because of the decline of strength of these international currencies compared to the past. Therefore the Toyota Company has been greatly hit by the aspects of currency exchange translation.
The Human resources department also has great role in determining the future success of the company. The laying off of the work force is highly likely to tamper with the quality of the company’s products.
Despite the challenges that the company is facing, the company can counter these problems by manufacture of in- time products such as its current Lexus type which is an environmentally friendly vehicle. Toyota automobiles like Prius and RX400h Hybrid of Lexus makes the company at the height of using its technologies to increase the company’s profits and future success. The company has introduced these hybrid vehicles at the time when the world is facing the challenge of high oil prices. Through technology the company’s success is visible due to its decision to share its technological ideas with other companies dealing with motor manufacturing for example the technology of Explorer SUV hybrid has been sold to them. The company’s new Aygo product is a positive initiative that the company has done to target a new unexplored market of the ‘urban youth’. This kind of vehicle is very unique with its new models which can be converted (Holton, 1997, pp 11).
To manage risks, the Toyota motors company can use its historical data to view the frequency of various losses. This can help the company to calculate the losses that are potentially faced by the company after a given period of time. The company will then be able to make decision which will limit and control the loss to a desirable level. This can be done through the Bayesian approach which will present the likely occurrence in future despite the company’s bad experiences over the past years. For example the company is currently facing low competition and a market that is deteriorating. These two elements can cause great loss to the company in the fourth quarter of the year which may rise even to double loss than what was expected. The best alternative for the company is to introduce new regulatory measure to decrease the impact (Dowd, 2000, p 43-46).
Holton J (1997) Subjective Value at Risk, Financial Engineering News, p 11
Dowd, K (2000) Estimating Value at Risk: A Subjective Approach, Journal of Risk Finance, p 43-46
Siu, K, Tong H and Yang, H (2004) On Bayesian Value at Risk: From Linear to Nonlinear Portfolios, Asia-Pacific Financial Markets, p 161-184.