Tesla Companys Business Strategy in the United Arab Emirates - Case Study Example

 Tesla Company Business Strategy in the United Arab Emirates Abstract The objective of this business strategy is to analyze and describe Tesla Company’s plan of internationalization to the United Arab Emirates (UAE). The strategy focuses on the aspects of the company’s background such as the mission, vision, core values, plan of operations, and strategic plan. The business strategy analyses the UAE market using Porter’s Five Forces analysis. The SWOT analysis is also critical in this business strategy because it reveals the internal strengths and weaknesses of the company while focusing on the opportunities and threats of the UAE market. Key words: Tesla Company, United Arab Emirates, market, company Introduction The current business environment is characterized by stiffening competition levels. Hooley, Piercy and Nicoulaud (2011) contend that business environments have experienced new global competitors who are entering the market due to falling trade barriers and costs of transactions through globalization. Despite this, Tesla Company dominates most of the electric car markets in the United States. Competitive pressure has made Tesla to focus on the dimensions of total quality management in terms of product quality, portfolios, pricing and global success to outdo automotive producers of Germany, Japan and Korea. The Japanese competitors include Nissan, Honda and Toyota, which are more fuel efficient and comparatively affordable cars that were preferred especially during oil crises periods. Germany’s Daimler and BMW are classic and produced for high-end consumers. Regardless of the cutthroat competition, Tesla Company maintains its competitive advantage through customer focused technology, outstanding fuel economy, and excellent management styles. The United Arab Emirates is one of the vast growing markets that Tesla Company can consider in its globalization endeavors. Company Background Tesla Motors Inc. was incorporated on July 1, 2003 (Hamilton, 2011). The company designs, develops, manufactures, and sells electric automobiles and powertrain components. Tesla concentrates on commercial production of federally-compliant electric vehicles such as the Tesla Roadster and Tesla Model S. Additionally, the company designs, develops and manufactures lithium-ion battery packs, gearboxes and electric motor vehicles. Tesla is credited for having provided services and components for the development of electric powertrain to companies such as Daimler AG for its Amrt Fortwo and A-class electric vehicles (Hamilton, 2011). The company carries out its activities from the electric powertrain facility in Palo Alto, Tesla factory in California. Tesla needs to partially invest in international markets and maintain the United States investments. The motor industry is experiencing competition from outsider manufacturers entering the United States (Hamilton, 2011). These companies are also penetrating other continents such as Asia, Africa, and Europe. The implication here is that the Tesla will lose its internal and external markets to competitors if the company cannot globalize its investments. Investing in cross-border markets will ensure that Tesla Company has a market share in those countries while simultaneously maintaining the local market in the US. Extensive sales and advertisement campaigns backed by innovative strategic plans will guarantee Tesla a competitive advantage in international markets. Vision The vision of the company is to increase the number and variety of electric vehicles available at cross-border markets. Mission The mission of the company is to sell its own vehicles in a variety of company-owned showrooms and online across the potential markets. Core Values The core values of the company include quality assurance, transparency, and accountability. Business Strategy The operational plan for Tesla Company comprises of several elements that the company intend to implement in its globalization process in order to achieve the objectives of firm. Proper assessment of vital components such as sales channels, value proposition, key resources, cost structure, revenue streams, key partners, and key operational activities will enable Tesla Company to widen its market size (Hamilton, 2011). Capital raised from promotions of the products will act as the revenue stream for the company; this is through our sales channels, for instance, Tesla Company intends to use its own website for promotional purposes. A successful business should target customer segments that have working class men models equipped with the skills of marketing. Tesla’s corporate strategy focuses on increasing the number and diversity of electric vehicles to both current and prospective consumers. Customers are located within both the United States and countries outside the US. Tesla intends to achieve its objectives through selling patented components to other auto manufacturers in order to boost the speed of adoption of the company’s electric vehicles. The company also intends to serve as a catalyst and positive example to vehicle manufacturers by demonstrating that there is increased demand for high-performance and efficient vehicles. Stages in Tesla’s Business Strategy Market Penetration Penetrating the United Arab Emirates market will potentially increase Tesla’s competitiveness in the motor industry. The company needs to consider increasing usage of the electric cars by the existing consumers in the UAE so that they can influence prospective customers. Increased use will inspire customer trust and attract customers away from the company’s rivals (Parker, 2006). Devising and encouraging additional car applications will increase frequency of use, while extensive advertising will encourage non-buyers to demand Tesla cars. Using the market penetration strategy is suitable for UAE markets because these markets are not saturated. There is potential for growth in the market since increased volumes of production by Tesla will lead to economies of scale. The existing market in the UAE confirms that the company has the scope of selling additional electric cars. Market Development Market development will primarily involve selling Tesla cars to a variety of consumers and entering new market segments with the existing products. This will enable the company to gain new customers in the UAE and develop its distribution channels, promotional strategies, and favorable pricing policies to attract and maintain different types of customers. Market development is suitable for Tesla due to the availability of excess capacity, guaranteed channels to access new markets and product familiarity despite there is lack of familiarity with customers (Parker, 2006). Tesla has a strong Research and Development team that will do extensive research in the UAE to identify proper markets for electric cars. The market is characterized by dynamism and competitiveness; competitors have the potential for making superior electric cars similar to Tesla. Despite huge investments required for this stage of business strategy, Tesla can consider market development because it promises long-term sustainability. Product Development Market involves selling existing products into the new markets. Tesla has the necessary resources to improve its electric cars and components to meet the needs of the United Arab Emirates consumers (Carlson, 2013). Possible approaches through which Tesla can achieve this objective are by searching for new product dimensions and distribution channels. Product development will involve altering the electric cars to be conducive and safe to be driven along the roads of the United Arab Emirates. Diversification Diversification will involve selling new electric cars and components to new markets and customers. Diversification is a highly risky strategy because it involves venturing into unknown markets and products (Andersen & Poulfelt, 2009). New products and such as advanced cars and electric automobile components, and new markets in the UAE offer the prospect for growth that the existing product market mix does not offer (Carlson, 2013). Tesla will use both related and unrelated diversification in its manufacturing endeavors in the UAE. The company will develop beyond present product, but operate within the broad confines of the industry. Tesla Inc. will build on assets and activities that the firm has already developed. Unrelated diversification will involve investing in completely new products and markets (Andersen & Poulfelt, 2009). Tesla has the potential for investing in fuel supply in order to fuel the Tesla vehicles and other vehicles in the UAE. Five Porter’s Analysis of the UAE Markets Threat of New Entrants The supernormal profits earned by Tesla Company may attract the entry of new motor manufacturers into the industry. Other manufacturers such as Audi, Chevrolet Volt, Toyota Prius and Honda Civic Hybrid have begun producing vehicles for high-end customers in the UAE markets parallel to Tesla Company (Bensoussan & Fleisher, 2008). The profits earned by Tesla Inc. may trend towards to normal and finally fall to break-even in the long-run. Sources of threat of new entrants include economies of scale, product differentiation, easy access to distribution channels and lenient government policy (Schonberger, 2008). Threat of Substitute commodities Several companies have engaged in extensive supply of substitute electric motor vehicles to the UAE markets. The UAE buyers have high propensity to substitutes because of low switching costs for consumer foods. The markets, therefore, are characterized by cutthroat competition where new substitutes are brought to market every day. Substitutes are also supplied in forms of alternative vehicles, electric motor vehicles and other automobile machinery. Substitutes have the potential for reducing Tesla’s competitive advantage in the UAE markets. Tesla, therefore, should engage in producing cars that satisfy all dimensions of service quality. Bargaining Power of Buyers The United Arab Emirates markets comprise of enlightened buyers who are sensitive to price and quality changes. The buyers have the ability to put Tesla under pressure, which has an effect in the buyers’ sensitivity to price changes (Rugraff, 2010). The United Arab Emirates markets have access to all market information and can force the reduction of prices in the event of failing to reflect the true value of the electric cars and automobile components. Tesla Company will maintain its quality and maximize on subsidies and tax exemptions to keep costs low; this will enable the company to reduce the prices. Bargaining Power of Suppliers Suppliers constitute the market for inputs such as raw materials, components, expertise, labor and energy. Manual labor exhibits features of excess supply in the UAE because of high populations. This implies that labor is affordable and easily available. The United Arab Emirates citizens believe in the principles of total quality management; their supplies in forms of raw materials and components are costly because they are prepared based on excellent quality standards (Andersen & Poulfelt, 2009). Raw materials may be costly in the UAE, but Tesla can consider importing from other countries such as Australia and India. Intensity of Competitive Rivalry Electric car manufacturing companies have embraced sustainable competitive advantage through intensive innovations. Most companies have gone online, and have online supply units to aid in marketing and supplying of their manufactured cars and components. The level of advertising expenses is high because of increased competition for advertisement airtime and strategic locations of promotions. The companies in the UAE have high degree of transparency and they have inspired their customer trust through the quality products they offer (Schonberger, 2008). Tesla Company will face stiff competition from conventional supermarkets and retailers dealing with gasoline cars, electric cars, and automobile components. Tesla will counteract the intensity of competition through massive online advertisement, motor shows, motor sports, and personal selling. These methods of advertising provide entertainment and personalized services that attract customers. The Tesla Company SWOT Analysis Strengths Tesla is a highly reputable company across the world for manufacturing electric cars and components for high-end consumers. This attracts several customers, especially because of the company’s image and publicity (Hamilton, 2011). Tesla can maximize on its excellent image and publicity to win several customers in the United Arab Emirates market. The company has a well-trained and experienced management team. Elon R. Musk, the Chairman of the board, the Chief Executive Officer, and Deepak Ahuja, the Chief Financial Officer, have the expertise to run the company to achieve its objectives. Harald Kroeger, the Director says that the company needs to maximize on its well-equipped management team to diversify successfully into cross-border markets (Hamilton, 2011). Weaknesses The company’s current ratio ranges between 1.0 and 1.2. This ration is less than the acceptable ratio, which should vary between 1.5 and 3.0 (Carlson, 2013). The current ratio indicates that the company may have difficulty in fulfilling its current obligations. The cash conversion cycle of Tesla Company is 3.2 days. This implies that the company may face financial problems in meeting cash obligations that fall due within one to three days. The company assumes full responsibility of developing the vehicles, including their own sub-assemblies. This leads to high costs of production when the costs of production as economies of scale are not achieved. Tesla manufactures cars for high-end customers; the prices of these cars are too high such that they limit some potential customers from buying these cars. These cars are also more comparative expensive than the fuel combustion vehicles. Most of the UAE citizens, however, are economically stable and can afford Tesla cars; the per capita GDP was $49,800 as estimated in the year 2012 (United States, 2013). The company will also encourage the citizens to adopt the green strategy so that they can appreciate the electric cars as opposed to gasoline cars. Opportunities Most governments across the world are supporting the environmentally friendly vehicles through exempting them from duties and offering subsidies for their manufacture. The company can maximize on this exemptions and subsidies to produce cars and sell them at relatively affordable prices (Carlson, 2013). Tesla has the potential for using quality control processes in order to improve quality and reduce costs drastically. Threats Tesla plans to produce, distribute and sell its cars to middle-level consumers. The company’s current model, however, cannot support the achievement of this objective. The company’s skimming pricing strategy has not been successfully applied so far in the motor vehicle industry (Schonberger, 2008). Tesla is currently trying to outcompete the technology that has been in use for many years; the combustion engines and their technology may take time to outdo because of the perceived switching costs. Conclusion Tesla Inc. is categorized as an electric vehicle in the sector of automobiles. The slogan of the company is burn rubber, but not gasoline. Tesla Company as the main manufacturing plant in the United States; however, the company has a potential for partially venturing into the United Arab Emirates markets. This report focused on the stages of Tesla’s business strategy, Five Forces Analysis of the UAE market and the company’s SWOT analysis. Tesla should move some of its investments to cross-border markets in order to maintain its market share and competitive advantage. Reference Andersen, M. M., & Poulfelt, F. (2009). Discount Business Strategy: How the New Market Leaders are Redefining Business Strategy. Hoboken: John Wiley & Sons, Ltd. Bensoussan, B. E., & Fleisher, C. S. (2008). Analysis without paralysis: 10 tools to make better strategic decisions. Upper Saddle River, N.J: FT Press. Carlson, W. B. (2013). Tesla: Inventor of the electrical age. Princeton, New Jersey : Princeton University Press Hamilton, T. J. (2011). Mad like Tesla: Underdog inventors and their relentless pursuit of clean energy. Toronto: ECW Press. Hooley, G. J., Piercy, N., & Nicoulaud, B. (2011). Marketing strategy and competitive positioning. New York, NY: Pearson Financial Times/Prentice Hall. Parker, P. M. 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