International Business Strategies of Tesla Motors - Example

International Business Strategies of Tesla Motors

Executive Summary

Core Competence Theory discusses the strategies that are undertaken by the organisations in order to enhance their performance in the global market and also to gain a competitive advantage. The competencies of the organisations are based on the efficiency level of the managers and employees. The report has discussed the competencies of the managers working in Tesla Motors who have been able to set up a brand reputation of the organisation in the global market. Tesla Motors have undertaken disruptive innovation by introducing the electric vehicles that reduce environmental pollution. However, there are other car manufacturers such as Volkswagen and General Motors that are trying to imitate Tesla Motors and prove to be strong competitors of the company. Therefore, it is recommended that Tesla Motors should manufacture its vehicles at low cost and focus on the mass market in order to attract a large number of customers.

Table of Contents

Introduction4

PART 14

Theories related to strategies adopted by Tesla Motors4

Core Competence Theories of Tesla Motors4

Mintzberg’s 5Ps of Strategy used by Companies5

Theory of Disruptive Innovation7

PART 28

Evaluation of Tesla’s performance on the basis of 5Ps strategic Model8

Analysis of the Disruptive Innovation Model followed by Tesla Motors9

Strategic Challenges faced by Tesla in its business expansion11

PART 312

Strategic solutions in order to overcome the weaknesses12

Recommendations for better management in Tesla Motors13

Conclusion15

Reference List16

• Introduction

With the impact of globalisation, the firms are increasingly forced to improve their business operations based on the opportunities available in the global market (Mangram, 2012). Large multinational organisations adopt various strategies in order to enhance their performance in the global market. The strategies also help the companies to gain competitive advantage in the global market. One of the biggest advantages of global strategies is that it enables the companies to influence economies of scale (Lane and Potter, 2007).

Competitive strategies help the firms to develop strategic initiatives so as to respond to various changes within the organisations (Sortomme and El-Sharkawi, 2011). MNCs often face global pressure in order to maintain the competitive pricing as well as the efficiency and local pressures in order to adapt to the local customs. MNCs usually negotiate with the global stakeholders in order to satisfy them gain funding so as to invest in other countries (Mangram, 2012). The report aims at discussing various theories and their application in enhancing the performance of Tesla Motors. The report also allows the researcher to critically analyse ability of Tesla Motors, to create sustainable competitive advantage through the strategies adopted by the company.

• PART 1
• Theories related to strategies adopted by Tesla Motors
  • Core Competence Theories of Tesla Motors

The theory is linked to the theory of strategy that indicates the actions to be undertaken by the firms in order to gain a competitive advantage in the market place. The theories that are discussed below indicate core competencies of Tesla Motors, so as to create its brand awareness in the international market.

• • Mintzberg’s 5Ps of Strategy used by Companies

Strategic Plan is designed by the companies in order to enhance their performance in the global market. There can be strategies adopted by the companies for various purposes such as improving the efficiency of the labour force working within the organisations and also the production levels within the economy (Morrish, 2011). A business model is to be considered as the central element to the strategic plan. However, there are cases when the companies fail to implement the strategies properly; and hence, there is a need to design the strategies according to the potentiality of the employees.

Strategy Ploy is designed by the managers of the company in order to trick the competitors, such that they can gain a better competitive advantage in the global market (Mangram, 2012). However, there is a need to know the potentiality of the competitors and design the strategies accordingly. Ploys are usually beneficial in case the competitors are much stronger (Lee and Jay, 2015).

Strategy as a pattern is the extent to which the actions of a firm remain consistent over the years. The firms are expected to follow a particular pattern for a limited time frame and then shift to a different pattern in order to earn greater profits (Mangram, 2012). In case the firms stick to a particular pattern, there is a possibility that the competitors are accustomed to that particular pattern and then they may design their own strategies so as to capture a large market share.

Figure 1: Mintzberg’s 5Ps of Strategy

(Source: Mangram, 2012)

Based on the strategies undertaken by the firms their positions are determined in the industries (Donada, 2013). The most powerful company adopting appropriate strategies are expected to hold higher position and these firms would acquire greater customer base in the global market. However, failure in undertaking appropriate strategies may lead to deterioration of the position of the company in the international market (Donada, 2013). On the other hand, changing position can also be risky for the companies as the new strategies may not suit the capability of the employees.

Strategy as a perspective depends on the interpretation of the managers within the companies regarding its competitive position within the industry. There are often conflicts among the managers and employees regarding the strategies that are decided within the organisations (Donada, 2013). Differences in perspectives of the team members may lead to various outcomes within the organisations.

• • Theory of Disruptive Innovation

There are cases when the companies prefer to innovate faster than the demand of the customers in the global market and as a result, they end up manufacturing sophisticated products. Companies are found to follow sustaining innovations at higher tiers of their market because they believe that they would be successful by following this strategy (Pinkerton, 2010). It enables the customers at the bottom of the market to utilise a product or service that is usually accessible to the elite class of population (Lee and Jay, 2015). There are several characteristics of disruptive business innovations such as lower gross margins and simpler products and services provided to the customers in the international market.

On the other hand, the disruptive innovations are considered as inferior by many of the customers and often they do not agree to switch to new products. In order to sell products to the price sensitive customers, companies usually adopt the disruptive innovation strategy in order to earn higher profits (MacCormack, 2012). However, studies have revealed that there are several limitations of the disruptive innovation strategy as it delivers low performance in the global market. Majority of the customers are not satisfied with the products served by the companies and therefore, the companies lose their brand loyalty in the global market (Lee and Jay, 2015).

The innovative products are initially offered to the low end customers who are more price conscious, which reduces the profit levels of the incumbent firms. On the other hand, there are benefits of disruptive innovations for the firms if they approach to the high end customers (Wesseling, Farla and Hekkert, 2015). It is evident that the high end customers appreciate the innovations and they begin to use these products. This in turn, raises the sale of the company’s products in the global market. There are other benefits of the disruptive innovation such as these products are easily affordable by the customers and once these products are introduced in the market they find their own ways to improve. Moreover, it is evident that the technological progress is faster in cases where the products are acceptable by the customers (Wesseling, Farla and Hekkert, 2015).

• PART 2
• Evaluation of Tesla’s performance on the basis of 5Ps strategic Model

The study on the strategic plan of Tesla Motors indicates that the company has recently changed its technology strategy, by seeking additional patent protection on its electric car technology in order to have a competitive advantage (Wesseling, Farla and Hekkert, 2015). The battery technology followed by Tesla Motors makes them more likely to produce the electric vehicles, as compared to the other automakers and the company has set up its higher position in automobile industry. On the other hand, there is a possibility that the existing car makers in the market may have an access to the technology of rapidly recharging the batteries and they would challenge Tesla’s position in the global market (Biasini, Onori and Rizzoni, 2013).

The marketing activities carried by Tesla usually focus on the performance of technologies used by them (Wesseling, Farla and Hekkert, 2015). The service centres of Tesla usually comprises of white floors so as to indicate that the electric cars do not posses oil and other dirty fluids that leak on the ground. Acquiring patents on rapidly changing batteries by Tesla can be considered as a strategy of Ploy, so as to capture greater market share in the field of manufacturing electric cars (Morrish, Miles and Deacon, 2010). Based on the perspectives of the investors of Tesla it can be concluded that the company has been able to overcome the barriers of entering into an automobile industry and has manufactured high quality electric cars. Further, the Silicon Valley start-up adopted by Tesla Motors would help the company to overcome the economic crisis.

According to the researchers, Tesla Motors manufacture its cars at much cheaper rates as compared to the other car manufacturers in Silicon Valley. The latest Models of Tesla Motors such as Roadster and Model S, were around $140 million and $650 million, which were much lower as compared to other manufacturers (Wesseling, Farla and Hekkert, 2015). As far as the strategy of plan is concerned, Tesla Motors have been able to plan large scale production of model S and acquired partnership with Toyota, Panasonic and Daimler. Based on the collected data, it was evident that Daimler invested $50 million and went into an agreement with Tesla to supply drivetrains for its Mercedes (Wesseling, Farla and Hekkert, 2015). On the other hand, there were transactions made by Tesla with Toyota which sold Tesla its New United Motor Manufacturing, Inc. (NUMMI) plant in Fremont, California (Wesseling, Farla and Hekkert, 2015). Moreover, adequate spare were provided by Toyota to Tesla for manufacturing its Model S and other high volume cars.

• Analysis of the Disruptive Innovation Model followed by Tesla Motors

Tesla Motors is an Electric vehicle manufacturing firm that has undertaken disruptive innovation solution in order to satisfy the customers in the global market (Wesseling, Farla and Hekkert, 2015). From the study it was evident that, Tesla Motors have entered the market by focusing on the customers of the high-end niche market who are able to pay high price for its products (Kumar and Putnam, 2008). However, it has adopted the disruptive innovation strategy, so as to attract the customers of low end markets by producing vehicles at lower rates as compared to the other companies. According to the Disruptive Innovation model, there are three different elements of disruption that have been identified within the performance of Tesla Motors. For instance, the power possessed by the high end cars are difficult to be used by the customers because of traffic jams, speed limits as well as safety concerns (Tesla, 2016).

Figure 2: Disruptive Innovation Model followed by Tesla Motors

(Source: Wesseling, Farla and Hekkert, 2015)

The dotted line in the above diagram represents the average customers who are willing to purchase vehicles from Tesla Motors (Andersen, Mathews and Rask, 2009). The second element is the level of technological development undertaken by the company in the international market. It is evident that in almost every company, the rate of technological development is higher in order to attract the customers and to earn a higher profit (Andersen, Mathews and Rask, 2009). Some of the companies prefer to undertake technological innovation in order to accelerate their production process and to meet the demand of the customers in the global market.

The third element involves the difference between sustaining as well as undertaking disruptive innovations. There are several models introduced by Tesla Motors and the company is gradually moving down the price ladder (Andersen, Mathews and Rask, 2009). Both Tesla Roadster as well as the Model S indicates a large capacity and high energy stored within the battery. Further study has indicated that, Tesla Motors have undertaken a flexible product strategy by entering through the high end market and then focusing on the mass market customer sector (Darnall, Jolley and Handfield, 2008). The company has enhanced the level of connectivity between the cars and the environment through charging stations and the battery. Unlike most of the disruptive innovation strategies adopted by the other companies that have began from the low end market and then focused gradually on the high end market, Tesla has initially focused on the customers preferring luxury goods (Tesla, 2016). The company has adopted the top down approach in order to create brand awareness for its high quality cars. Nonetheless, in the wake of doing business it has focused much on the high end customers and their preferences. Therefore, the company has landed itself in huge competition in the global market with the emergence of rival firms like Nissan, Volkswagen etc.

• Strategic Challenges faced by Tesla in its business expansion

With the high demand of the customers in the global market, the further expansion of Tesla Motors may be affected by insufficient battery supply with huge shortage of the lithium-ion cells. This would in turn affect the performance of the company in the global market and it would not be able to meet the growing demand for electric cars. The company aims at opening its car dealership in a large number of countries but with small number of employees it is difficult for the company to implement such an objective. Further, due to the lack of charging stations and long charging hours there are possibilities of diminishing consumer interest in the purchase of electric vehicles (Biasini, Onori and Rizzoni, 2013).

Therefore, the company must ensure the availability of the charging stations in various places such as restaurants, parking garages and other commercial establishments. There are other challenges that are faced by Tesla Motors such as the rise in price of Lithium that would force the company to invest a huge amount on setting up battery factories. Moreover, there are a large number of competitors in the international market such as Nissan, Ford, General Motors, Toyota and Honda which also manufactures luxury cars for the customers (Biasini, Onori and Rizzoni, 2013). Usually, the cars manufactured by Tesla Motors are expensive and focuses on the niche market, whereas demand for cars are high in the mass market which indicates that Tesla Motors would lose the competition (Biasini, Onori and Rizzoni, 2013).

• PART 3
• Strategic solutions in order to overcome the weaknesses

There is a need for Tesla Motors to overcome the challenges in order to maintain its sustainable growth in the international market. In order to support the production of the electric vehicles, new battery factory should be set up such that the cars are able to have efficient battery backups. The company can partner with more battery suppliers apart from Panasonic or can use flat prismatic cells instead of cylindrical alternative in order to reduce cost (Biasini, Onori and Rizzoni, 2013). It is evident that the company works with small number of employees and so there is a need to enhance the hiring process of Tesla Motors such that the employees are able to deal with the improved technologies. On the other hand, the technologies adopted by Tesla Motors needs to be unique such that these are not imitated by other car makers.

Cost effective technologies can be beneficial for the company as it can maintain a low cost for the car that it sells in the global market. Tesla is usually known to focus on the high end customers but it would be better for the company to meet the demands of the low end customers and focus on the mass market. Further, the patents that have been acquired by the company regarding rechargeable batteries are likely to be acquired by other companies as well (Biasini, Onori and Rizzoni, 2013). There is a need to attract the customers by manufacturing unique products which would help the company to achieve greater customer base. In order to develop the high quality cars there is a need for the managers to be experienced in this field and also there is need for the company to posses’ adequate infrastructure. The company needs to check the performance of the vehicles regularly and collect feedback from the customers to develop the product according to their requirements. The distribution channel managed by Tesla Motors needs to be enhanced and online stores are likely to help the company reach large number of customers in the international market (Biasini, Onori and Rizzoni, 2013). Information can be provided to the customers regarding the new models of cars that they are planning to launch in the global market. Moreover, the customers should be allowed to share their experiences with other customers so as to influence them in purchasing the cars. Further, the organisational culture of Tesla Motors is an important factor that affects its growth in the global market.

• Recommendations for better management in Tesla Motors

The managers of Tesla Motors are expected to design the strategies in favour of the employees such that they are able to deliver better performance. The employees are to be trained for better customer relationship management that would help them to gain brand loyalty. Good knowledge of the batteries used in the cars would enhance the quality of vehicles manufactured by the company. As part of the disruptive innovation strategy, the newly launched vehicles such as Tesla Roadster and Model S are based on the high energy stored in the battery. Therefore, developing a close relationship with the battery cell suppliers is an effective way through which the company can achieve its goal. New business models as well as new strategies are to be followed by Tesla Motors so as to gain competitive advantage.

Figure 3: Porter's Generic Strategies

(Source: Biasini, Onori and Rizzoni, 2013)

Business expansion into a new market mostly in the developing countries would provide an opportunity for the company to flourish. The new strategies may involve the cost leadership as well as the differentiation strategies that are likely to attract potential customers in the new market. It is evident that majority of the customers are rational and prefer high quality products at affordable prices. Therefore, the cost leadership strategy would enable the company to manufacture the cars at low prices such that the company is able to earn greater profit in the global market. Product differentiation strategy would help the Tesla Motors to differentiate its products from the other companies and set up its brand reputation in the global market. The disruptive innovations made by Tesla Motors should be such that, these are able to create beneficial impacts on the customers. Proper inventory management has to be done for the machinery and equipments that are supplied to Tesla Motors such that these can be used for future purposes. Furthermore, the feedback provided by the customers’ is to be taken into consideration for improving the level of sales in the international market.

• Conclusion

Tesla Motors plays an important role as the electric car manufacturer which is in high demand in the international market for its pollution free technology. The company maintains its level of sustainability while manufacturing the cars. The report is based on the core competence theory that discusses the strategies adopted by Tesla Motors in order to expand its business. Mintzberg’s 5Ps theory indicates the different strategies to gain competitive advantage over the rivals of the company in the global market. Nissan, General Motors, Ford, Volkswagen are considered as the most important rivals of Tesla Motors. Therefore, Tesla Motors is usually found to use the disruptive innovation strategy in order to gain its position in the international market. It has focused on the high end niche market that is able to purchase luxury cars and then gradually moved to the low end customers. However, there are several challenges faced by the company such as, the rise in price of Lithium ions that are used in the batteries. Further, the company had to take initiative to set up charging stations at various places where the customers are likely to take their vehicles like restaurants, shopping malls etc.

• Reference List

Andersen, P.H., Mathews, J.A. and Rask, M., 2009. Integrating private transport into renewable energy policy: The strategy of creating intelligent recharging grids for electric vehicles. Energy Policy, 37(7), pp.2481-2486.

Biasini, R., Onori, S. and Rizzoni, G., 2013. A near-optimal rule-based energy management strategy for medium duty hybrid truck. International Journal of Powertrains, 2(2-3), pp.232-261.

Darnall, N., Jolley, G.J. and Handfield, R., 2008. Environmental management systems and green supply chain management: complements for sustainability?. Business Strategy and the Environment, 17(1), pp.30-45.

Donada, C., 2013. Electric mobility calls for new strategic tools and paradigm for automakers. International Journal of Automotive Technology and Management, 13(2), pp.167-182.

Kumar, S. and Putnam, V., 2008. Cradle to cradle: Reverse logistics strategies and opportunities across three industry sectors. International Journal of Production Economics, 115(2), pp.305-315.

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Lee, M. and Jay, J., 2015. Strategic responses to hybrid social ventures.California Management Review, 57(3), pp.126-148.

MacCormack, A., Crandall, W., Henderson, P. and Toft, P., 2012. Do you need a new product-development strategy?. Research-Technology Management, 55(1), pp.34-43.

Mangram, M.E., 2012. The globalisation of Tesla Motors: a strategic marketing plan analysis. Journal of Strategic Marketing, 20(4), pp.289-312.

Morrish, S.C., 2011. Entrepreneurial marketing: a strategy for the twenty-first century?. Journal of Research in Marketing and Entrepreneurship, 13(2), pp.110-119.

Morrish, S.C., Miles, M.P. and Deacon, J.H., 2010. Entrepreneurial marketing: acknowledging the entrepreneur and customer-centric interrelationship. Journal of Strategic Marketing, 18(4), pp.303-316.

Pinkerton, M.J., 2010. Considering the Next Generation of Innovators: Incorporating the Needs of Start-ups into the United States Patent and Trademark Office's Intellectual Property Strategy. Pac. McGeorge Global Bus. & Dev. LJ, 23, p.313.

Sortomme, E. and El-Sharkawi, M.A., 2011. Optimal charging strategies for unidirectional vehicle-to-grid. Smart Grid, IEEE Transactions on, 2(1), pp.131-138.

Tesla, 2016. Timeless design, intelligent performance. [online] Available at: < https://www.teslamotors.com/> [Accessed 16 May 2016].

Wesseling, J.H., Farla, J.C.M. and Hekkert, M.P., 2015. Exploring car manufacturers’ responses to technology-forcing regulation: The case of California's ZEV mandate. Environmental Innovation and Societal Transitions, 16, pp.87-105.