Global Business & Strategy

1

14

Global Business and Strategy

EU Business School

Calvin Kammer

Introduction

A global business is a company that serves or operates in different countries worldwide. Due to international market openness, the global business environment has become so dynamic thus, the sustainability of any company will depend on the business strategy adopted (Morgan, et al 2019). To this end, this report will evaluate the global business and strategic objectives of Tesla and provide recommendations on the Company's strategic roadmap.

Background of Tesla Company

Tesla Company is an American automobile firm that has pioneered the world transition to eco-friendly energy by designing and manufacturing solar roof tiles, electric cars, and solar panels. The Company was established in 2003, and it operates in the US and China, but it plans to establish a manufacturing plant in Germany. Tesla reported improved sales in 2021 recording a total of 936,172 vehicles which represented an 87% growth compared to 2020 sales (Jiang, Shi & Li 2021).

External Business Environment Analysis

The external business environment is macro-factors that influence the business's operations but which are over and above the control of a single business entity Any reference?. To adequately understand how these factors impact the industry, we shall employ the PESTLE analysis. PESTLE analysis is a macro environment analysis tool which evaluates the external factors which influences the performance of the business. The analysis looks at how the political, economic, social, technological and legal elements impacts the operations of the company (Achinas et, al.2019). This model is relevant to case study of Tesla Company because it will give an in-depth understanding of the company’s external business environment and how the factors have impacted on its operation.

PESTLE ANALYSIS

Political

Sholihah, et al. (2019) notes that, Political factors are government policies that influence businesses. For instance, trade policies can restrain a company's expansion and industry performance. The political factors have been significant in influencing the growth of Tesla Company. The Company can expand its financial muscle through government incentives related to efforts by countries in different parts of the world to minimize carbon release. The electrical and solar products of Tesla are likely to have a global acceptance, thus creating opportunities for faster growth. Similarly, the political stability in the US, China, and other parts of the world offers more excellent prospects for Tesla to make market penetration and record more revenue.

Economic

Economic dynamics such as growth rate and exchange rates influence big business like Tesla. For instance, the electric cars manufactured by Tesla have presented an opportunity for it to reduce battery costs leading to the affordability of the firm’s products. Additionally, the Company's products have been considered a panacea to renewable energy problems, thus presenting growth opportunities (Achinas, et al 2019). On the other hand, Covid 19 has imposed an economic threat on the performance of Tesla, forcing the management to shut down the operations in the firm's main factory in California until May 2020 (Xu, 2020). As a result, the Company's revenue fell to $6bn, a 5% decline compared to 2019.

Social- Cultural factors

Social factors analysis of the Tesla Company show opportunities for growth based on the surge in demand for a low carbon lifestyle and an increased propensity for renewable energy. These macro factors open chances for increased demand for the firm's electric cars and solar products.

Technological Factors: Technological advancement has become the engine to drive global business (Jiang, et al 2021). The expansion of Tesla Company's automobile products intimately depends on the technology. For instance, the cost-effectiveness and efficacy of the firm's batteries depend on the materials engineering technology used. However, the dynamics in technology are likely to threaten the Company since some technology becomes obsolete very fast.

Ecological factors: Ecological trends such as environmental sustainability impact the business's performance in several ways. These factors have influenced the expansion of Tesla Company by providing opportunities to support the firm's electric vehicles and solar products based on climate change issues and a surge in waste disposal standards.

Legal factors: These are statutory requirements that a business must observe in the countries it operates. The increased international patent protections and energy consumption laws provide an opportunity for the growth of Tesla. The US and Chinese governments have strict patent protection regulations that expand the Company's electric cars and solar products (Purwaningsih, 2020).

Internal Analysis

Internal analysis entails assessment of various internal elements of the Company, such as the firm's processes and resources that are fundamental for its growth any reference?. This report will use the VRIO analysis tool since it is relevant for the planning and strategic development of Tesla Company. The application of VRIO analysis to the case study of Tesla will be fundamental in understanding the factors that have given the company the competitive advantage and provide insight on its strategic roadmap.

VRIO Analysis of Tesla

VRIO is an internal analysis tool that stands for Valuable, Rare, Inimitable, and Organized. This analysis tool represents four essential proficiencies and resources that define the Company’s competitive edge (Lope, 2018). The core competencies that determine the competitive advantage of Tesla are:

Brand Image: Tesla Company has managed to create an autonomous brand image which is the source of the Company's competitive advantage. Tesla has acquired a distinct image in the automobile industry, surpassing the critical competitors due to innovation and a sustainable business model, making it valuable.

Customer experience: Tesla offers its customers an overall riding experience that is significantly different and superior to the rival cars. Due to exceptional customers' experience, the Company's electric vehicles have gained considerable attractiveness over the competitor's models. One of the Tesla’s outstanding models is the premium EV which is loftier in looks, performance, and design. Tesla Company electric cars' zero carbon footprint is another significant advantage over the competitors (Kim, 2020). The increased demand for fuel-efficient, eco-friendly vehicles has created an unprecedented opportunity for the growth of the Company. The increasing presence of Tesla products in China and the US explains customers' preference for eco-friendly car models.

Technological innovation: Tesla Company has demonstrated its power in research and development, enabling it to produce high-quality cars and solar products by applying the latest and sophisticated technology. The technology used provides a self-driving experience and a large touchscreen, which offers many conveniences to the users (Kim, 2020). The Company has also developed a Tesla app that drivers can control the car from the outside. Additionally, innovation has enabled the Company to build rare car batteries and inimitable other companies in the overall EV market category.

Market Position: Tesla has created a strong market presence in the EV and automobile industries. The growth of the Company's market position has been influenced by organized and focused innovation and unmatched performance of its cars. The Tesla car provides high battery performance and driver safety, making it more attractive and user-friendly.

SWOT Analysis of Tesla

A SWOT analysis evaluates the strength, weaknesses, opportunities, and threats of the business to enable the development the overall strategic roadmap reference?. The Company can identify the areas that need improvement and risks imposed by the micro and macro business environment through the analysis.

Strength · Innovation · Strong customers’ experience · Brand Equity · Market position (from VRIO) should be here too!	Weaknesses · Limited presence (where does it come from?) · Low volume of production (where does it come from?)
Opportunities · Global sales expansion · Future sustainability · Automated driving technology · Market confidence	Threats · High competition · Product liability allegations · Manufacturing complexity

Implications of SWOT Analysis.

The SWOT analysis of Tesla Company shows that innovation and brand equity are the significant strengths contributing to the Company's higher growth. The brand equity has seen the Company considered a top employer in the automobile industry. In 2019 Forbes named Tesla Company one of the most attractive organizations to work for globally (Matthews, et al. 2020). Another significant opportunity for the Company is automated driving technology. The planned development of vehicle software and the recent launch of the Tesla app has placed the Company on a high growth trajectory. The launching of vehicle software will enable the Company to expand its clout in the automobile market. On the other hand, the Company will have to improve its major weakness, which springs from its limited presence, as explained by the Company's primary operations in the US and China.

Notably, the Company has several opportunities which will be vital in its continued growth. More importantly, is the opportunity for global sales expansion and future sustainability. Due to increased demand for carbon-free cars and increased advocacy by countries for eco-friendly automobiles, the Company has more significant opportunities to increase global market penetration and more sales revenue (Kim, 2020). The production of renewable energy automobiles further provides future sustainability opportunity since the global trends shows that the customers in the automobile industry are increasingly gravitating towards the technology. There is also greater opportunity for the company to spread its market dominance by utilizing the increased consumers demand for safe driving experience. The company can leverage on this opportunity by scaling up the production of fuel-efficient and eco-friendly electric cars.

Like any other established industry, competition is very high in the automobile market, with renowned companies such as Toyota and Ford Motor threatening the phenomenal success of Tesla. Mercedes- Benz, and Toyota are increasingly embracing and following the same technological footprint used by Tesla, imposing risk to the Company's market dominance.

Similarly, higher innovation comes with a lot of risks and mechanical mishaps in the process of productions. Tesla has in the past reported launch delays and mechanical issues when unveiling new cars (Matthews, et al 2020). For instance, the Company experienced manufacturing glitches that resulted in the delayed launching of the model X.

Strategic Plan by use of TOWS

TOWS analysis is developed from SWOT analysis, and it combines the micro and macro business environment to identify appropriate strategic possibilities that the Company can pursue. Four fundamental strategic options can be deduced by connecting the micro business environment's strengths and weaknesses and macro business factors' opportunities and threats (Kulshrestha & Puri, 2017). An evaluation of Tesla's SWOT grid and application of the TOWS model provides the following strategic roadmap.

Strength and Opportunities (SO): The innovative power of Tesla provides essential opportunities for global market penetration and automated driving technology. The Company should develop a marketing strategy focused on promoting its eco-friendly automobile and solar products that will help it penetrate viable markets in Africa, Asia, and extensive European markets.

Strength and Threats (ST): Tesla can apply its vast market strengths to outdo the threats imposed by external factors such as stiff competition by the competitors. For instance, increased research and development, which is the precursor of innovation, will be imperative in helping the Company remain competitive in the ever-changing automobile industry. Gelfand, Choi & Prokopowicz (2019) states that increased investment in research and development will also help the Company deal with manufacturing complexity, which has exposed the Company to market risk in the past. Enhanced research and development will facilitate adopting actionable innovation to help deal with production mishaps.

Weakness and Opportunities (WO): Tesla company manufacturing plants have been constrained in the US and China, making the Company have a limited presence despite the opportunities in the vast global market. The Company should seek to expand by establishing manufacturing plants in other parts of the world to market penetration strategy.

Weaknesses and Threats (WT): Threats and weaknesses are macro and micro factors that businesses face and which impose significant risk on the organization's survival. Tesla Company has been met with the threat of high competition and the weakness of limited presence and low production volume (Sholihah, 2019). However, the Company will reduce this combined risk by adopting market and product expansion strategies. By establishing manufacturing plants in other parts of the world such as Africa and Europe, the Company will reduce the high competition in the market.

Strategic Recommendations based on Company’s Analysis

The SWOT analysis of Tesla has shown that despite the Company's phenomenal growth, some challenges still abound. These market challenges call for developing strategic plans that will enable the Company to surmount the existing tantrums and gain a competitive edge. This report will delve into Porter's generic strategies model to make distilled strategic recommendations for Tesla while focusing on two strategic approaches- cost leadership and differentiation (Morgan, et al 2020).

Cost Leadership strategy

Cost leadership is a business strategy that entails providing products and services at a lower cost to boost revenue and gain a competitive advantage in the market. To attain this strategy, a company must be benefiting from the economies of scale, have efficient distributions channels, and access to raw materials. Additionally, the effectiveness of cost leadership strategy stems from investment in technology and innovation, which are pre-requisite for reducing cost. Tesla Company has demonstrated the cost leadership strategy through vast investment in research and development which will eventually lead to low production costs in the long run. According to Jyoti & Kour (2017) cost leadership strategy enables the Company to increase its market dominance since its products and services are relatively priced lower than the competitors. Tesla’s market dominance can be explained by its record 87% increase in sale in 2021. A strong market presence and command attract huge sales revenue, thus more profits. Despite the plethora of benefits that accrue to the Company employing a cost leadership strategy, it also comes with some disadvantages. For instance, the effectiveness and sustainability of this strategy demand aggressive price wars, which might be detrimental to the Company through operational cost flights.

Differentiation Strategy

Differentiation involves a company making its products and services conspicuously different, unique, and appealing to potential customers than those of the competitors in the industry. Differentiated products often come with unique features, support, and functionality that gravitates and attracts customers. Tesla Company has used differentiation strategy through the production of electric cars which have given it unique brand image in the automobile industry. Jyoti & Kour (2017) states that the achievement of differentiation strategy calls for a company to invest pervasively in research, development, marketing, and sale promotion and explain to the potential customers the unique benefits related to a given product. More often than not, a company with differentiated products commands the market in terms of increased sales, more profits, and competitive advantage. On the other hand, effective implementation of differentiation strategy requires a heavy capital outlay in research and development; thus, a company with limited capital power may not fully utilize it.

Justification of the best strategy to the adopted by Tesla Company using SAF strategic model

SAF strategic model is a practical strategic decision-making tool that aids in making decisions and selecting among various strategic options. A good strategy must satisfy three essential criteria of the SAF model (Kalama, 2020). The bricks of the SAF model are suitability, acceptability, and feasibility.

Suitability: This research has proposed two strategic options- cost leadership and differentiation; thus, the usefulness of each has to be assessed in light of Tesla's SWOT analysis. The Company has demonstrated its powers in innovation, enabling it to produce unique electric cars. Similarly, Tesla stands out as the most preferred brand in the market based on its phenomenal success and continued growth, as evidenced by $ 31.5billion revenue reported in 2021 (Almenhali, et al 2021) .The production of the first-ever carbon-free cars makes the Company more outstanding in the market. As such, the management of Tesla should use a differentiation strategy because it is more suitable than cost leadership which cannot be sustained in the long run because of competition in the industry.

Acceptability: A good strategy should provide more benefits to the Company than the cost of implementation. By considering the cost-benefit analysis of the two options, differentiation seems more acceptable than the cost leadership strategy. The acceptability of differentiation strategy can be explained by the wide reception of Tesla eco-friendly products like electric cars which have earned it more global appeal than the competitors (Hoeft, 2021). On the other hand, the probability that a cost leadership strategy may succeed is limited because other companies may retaliate by lowering prices.

Feasibility: The feasibility evaluation Tesla SWOT analysis points out that a differentiation strategy is the best option to pursue. The Company has been able to finance extensive R& D, which has enabled it to produce exceptional electric cars; thus, the technology used can still be modified to allow its products to remain competitive in the industry (Jyoti, 2017). On the other hand, the cost leadership strategy may not be technically feasible in the long run.

From the above analysis, the management of Tesla Company should pursue a differentiation strategy because the eco-friendly technology adopted by the Company supports the system, and future market trends indicate that, more customers are gravitating toward safer and carbon-free automobiles.

Conclusion

In summary, global business is more competitive; therefore, the survival of companies depends on the strategies adopted. Try to add the process you follow to come to this conclusion. Ie you analyzed the external environment, the internal situation of the companya and using SWOT/TOWS you came to …To accelerate growth Tesla Company’s has invested more in research innovation and differentiation as the key strategies which has enabled it record an exponential growth since its launch in 2003.

Reference

Achinas, S., Horjus, J., Achinas, V., & Euverink, G. J. W. (2019). A PESTLE analysis of biofuels energy industry in Europe. Sustainability, 11(21), 5981.

Almenhali, A., Alhajeri, H., Almansoori, H., Aljneibi, N., Almansoori, N., Alsulaity, N., & Nobanee, H. (2021). Financial Analysis of Tesla. Available at SSRN 3896901.

Gelfand, M., Choi, V., & Prokopowicz, P. (2019). This is how Tesla can improve its company culture.

Hoeft, F. (2021). Auto makers and radical innovation: culture, capital and talent form road blocks. Journal of Business Strategy.

Jiang, Y., Shi, Z., & Li, T. (2021). Research on the Value of Tesla Inc. based on Three Valuation Methods. BCP Business & Management, 13, 290-296.

Jyoti, J., Arora, H., & Kour, S. (2017). Outsourcing and Organizational Performance: Role of Cost Leadership, Differentiation and Innovation Strategies. Sustainable Competitive Advantage: A Road to Success, 171.

Kalam, K. K. (2020). Market Segmentation, Targeting, and Positioning Strategy Adaptation for the Global Business of Vodafone Telecommunication Company. International Journal of Research and Innovation in Social Science (IJRISS), 4.

Kim, H. (2020). Analysis of How Tesla Creates Core Innovation Capability. International Journal of Business and Management, 15(6), 42-61.

Kulshrestha, S., & Puri, P. (2017). Tows analysis for strategic choice of business opportunity and sustainable growth of small businesses. Pacific Business Review Int, 10(5), 144-152.

Lopes, J., Farinha, L., Ferreira, J. J., & Silveira, P. (2018). Does the regional VRIO model help policy-makers assess a region's resources? A stakeholder perception approach. Land Use Policy, 79, 659-670.

Matthews, T., Hirve, M., Pan, Y., Dang, D., Rawar, E., & Daim, T. U. (2020). Tesla Energy. In Innovation Management in the Intelligent World (pp. 233-249). Springer, Cham.

Morgan, N. A., Whitler, K. A., Feng, H., & Chari, S. (2019). Research in marketing strategy. Journal of the Academy of Marketing Science, 47(1), 4-29.

Purwaningsih, E. (2020). Patent Law and Its Enforcement in Indonesia, Japan and the USA. Jurnal Media Hukum, 27(1), 1-22.

Sholihah, M. A., Maezono, T., Mitake, Y., & Shimomura, Y. (2019). Towards development a PSS business evaluation: Proposal of internal and external analysis for revitalizing manufacturers. Procedia CIRP, 83, 363-368.

Xu, Z., Elomri, A., Kerbache, L., & El Omri, A. (2020). Impacts of COVID-19 on global supply chains: facts and perspectives. IEEE Engineering Management Review, 48(3), 153-166.