GLOBAL STRATEGY FOR TESLA

Student Name

Course

Professor Name

Date: 11th November 2022

Introduction................................................................................................................................3

Tesla’s Performance Assessment...............................................................................................3

Porter’s Diamond Model............................................................................................................4

Firm Strategy, Structure and Rivalry.....................................................................................4

Factor Conditions...................................................................................................................5

Related and Supporting Industries.........................................................................................5

Demand Conditions................................................................................................................5

Government............................................................................................................................6

Chance....................................................................................................................................6

Internationalization Strategy......................................................................................................6

Country Analysis........................................................................................................................7

Country Environmental Analysis...........................................................................................7

Country Selection/Country Attractiveness...........................................................................10

Mode of Entry..........................................................................................................................10

Managerial/Organizational Issues............................................................................................11

Solutions...................................................................................................................................12

References................................................................................................................................14
 GLOBAL STRATEGY FOR TESLA

Introduction

Tesla Inc. is an American multinational company that is known for its advanced

technology in clean energy introduction for automotive industry. The headquarter of the

company is based in Austin, United States and it is founded by Elon Musk, Martin Eberhard,

Ian Wright, and Marc Tarpenning. Tesla designs and manufactures electric vehicles that are

environmentally friendly as well as battery energy storage, solar panels, and roof tiles. Tesla

operate in the automotive industry with its operations spread across United States, Canada,

London, Germany, Japan, China, Hong Kong. Australia, Dubai, and Jordan. The turnover of

the company in the latest FY 2021 amounted to $53.8 billion and the number of employees as

of April 2022 were 11,000 (TeslaInc. 2021). This report aims to cover the expansion of the

company’s operation in Doha, Qatar.

Tesla’s Performance Assessment

Tesla set out to create reliable electric cars with the goal of expediting the global

switch to renewable energy. Tesla's market worth reached $568.99 billion by November 2022

making the company 7th most valuable company globally (Nasdaq, 2022). Despite having

such strong valuation of the company, Tesla has not yet spread its wings across the globe and

holds significant opportunities for expansion and growth. By middle of November 2022, the

stock was trading at $194 (Nasdaq, 2022). The stock price of the company has hit 2-year low

amidst the Tesla founder, Elon Musk, acquisition of Twitter which has sparked concerns for

investors whether Musk would be able to handle two large firms at the same time (Rees,

Barnert and Dey, 2022).

The market for electric vehicles is growing rapidly with a valuation of $123 billion in

2020 and is expected to reach $869 billion by 2027 (Statista, 2022). This shows that the
demand for Tesla cars would be increasing in the future leading to greater sales and revenue.

Hence, tapping into new markets would allow the company to cache the growing demand and

avail larger turnover.

Another approach that makes Tesla’s internationalization feasible is its vertical

integration approach. Tesla is 80% vertically integrated, whereas automotive businesses

normally outsource about 80% of their parts through vendors. Tesla is able to cut its expenses

significantly because of its vertically integrated business model as it allows the firm to take

on innovation rapidly and be more reactive to customers. The removal of third-party is the

key component of Tesla's vertically integrated value chain (Ahmad and Khan, 2019).

Porter’s Diamond Model

The Porter’s Diamond Model is used by companies to assess their competitive

advantage on a national level in order to expand and diversify into international markets.

Mentioned below is the analysis of Tesla using Porter’s Diamond Model.

Firm Strategy, Structure and Rivalry

For several years, Tesla was leading as second to none manufacturer and distributor in

the EV market. However, now Tesla has big competitors such as Mercedes-Benz, Ford,

Nissan, and Honda to disrupt the market dominance of the company (Popli, 2022). Strong

competition allows Tesla to become more cost competitive and introduce novice technology

to attract customers. Furthermore, the organizational structure at Tesla is flatter which allows

leadership to closely manage the employees and workflow of the company that would further

provide benefits for international growth.

Factor Conditions

The capital resources of the company are available through both equity and debt

financing. Tesla’s expenditure amounted to $20 billion on its most important function, R&D
whereas its rival, Ford declared that it spent $11.5 billion on electrification (Chen, 2022).

Furthermore, Tesla uses renewable energy resources that are infinite and will not go scarce

thus allowing the company to have long-term prospects for their future.

Related and Supporting Industries

The supporting industries of Tesla provide the ground for the company to excel and

expand. Especially the supplier of Tesla is CATL which is the world’s largest vehicle battery

maker. Having such strong ties and connection with world’s largest battery maker gives a

competitive advantage to Tesla as the company can rely on their supplier for timely supplies,

input, and communication.

Demand Conditions

Tesla faces a huge demand in the United States for the electric vehicles as people are

becoming more environmental conscious and want to switch to renewable options compared

to gas. Furthermore, recently the surge in prices of gas led to an unprecedented spike in the

demand of electric vehicles in the country due to which Tesla had to stop taking orders to

clear the backlog (Lambert, 2022). Growing demand conditions give a push to companies to

expand and grow into international markets, as is the case with Tesla.

Government

The U.S. government supports the manufacturing and usage of electric vehicles by

providing subsidies and relaxing policies to support. There have been a number of measures

to support the growth of battery manufacturing plants in the United States. As each carmaker

approaches its limit of 200,000 qualified electric cars, the utilization of federal U.S. tax

credits is projected to gradually decrease between 2018 and 2025 (Lutsey, 2018). At least five

states engaged in a competitive effort to win the Tesla Panasonic facility by extending
subsidies and tax breaks based on the likelihood of job development. When complete, the

facility will have a 35 GWh yearly production capacity (Lutsey, 2018).

Chance

Chance includes natural disasters and other external factors that can affect the

performance, growth and expansion of the company. In the case of Tesla, the global

pandemic is the biggest factor to consider under this category. Due to surge of Covid-19, the

company had to close its plants and halt delivery of cars which impacted the sale and income

of the company. In Q2 of 2022, the sales of Tesla were still impacted, and shares of the

company also faced drop by 38% due to investors seeing the fortune as a seesaw (Novet,

2022).

Internationalization Strategy

Multidomestic

Multidomestic strategy involves focusing on the country-specific branding and

marketing instead of creating one global brand. It involves decentralization of decision

making to the local business units in each country which results in maximum local

responsiveness.

Global/International

This is the most used internationalization strategy when businesses choose global

expansion. This approach involves exporting and importing goods while maintaining the head

office in the home country.

Transnational

The strategy adopted by Tesla should be a transnational one to expand on a global

scale. A transnational strategy is the one where the company has centralized operations in one

country with its operations and assets spread overseas. This strategy will allow the firm to
leverage local responsiveness and high level of global expansion and operations. Tesla can

use the strategy to adjust their sales and customize their products as per needs of the local

market. This strategy will provide a multidimensional perspective to Tesla. Strong

transnational organization responds to regional demands and has the capacity to recognize

and assess market changes and developments (Ahrens and Guetz, 2015). This is seen as

having a competitive advantage since businesses can respond and comprehend a nation's

culture, perspectives, preferences, tastes, and systems.

In their offerings and operations, transnational companies seek to strike a balance

between uniformity and uniqueness. According to Barlett et al. (2011), a variety of pressure

factors are forcing businesses to change their tactics and lean more heavily toward a

transnational strategy to expand internationally. Therefore, through transnational expansion,

Tesla would be able to keep its management centralized while availing the resources, assts,

operations of another country.

Country Analysis

Country Environmental Analysis

To evaluate the environmental analysis of Qatar, PESL framework and Porter’s 5

forces will be discussed below.

PESL Framework

The PESL framework of the Qatar is discussed below.

Political: Doha, the capital of Qatar, is located in the Middle Eastern region and is quite

small. Though, its impact is seen well beyond the borders of the country. In the Middle East

and beyond, it often serves to reduce tensions between competing groups. United States,

China and Turkey countries are among of its closest allies. Additionally, it has an agreement

of cooperation with Iran. The political conditions of Qatar remained quite unstable because
Saudi Arabia, the UAE, Bahrain, and Egypt and all other Middle Eastern countries decided to

boycott Qatar in 2017 (BTI, 2022). In early 2021, however, the boycotting parties changed

their tone to one of normalcy and began taking concrete moves to restore land, sea, and air

transport to and from Qatar. The attitude of government towards FDI makes Qatar one of the

most attractive places for foreign investors. Foreign investors in Qatar may take advantage of

a number of significant provisions of the country's Foreign Investment Law. In particular,

investors from outside of Qatar are protected from expropriation and are allowed to send

funds abroad in connection with their investments without interference from the government.

Furthermore, foreign investors may sign leases for a maximum of 50 years (Keane, 2022).

Economical: Although the country is small in size and population, but it is the richest

countries in the world with Gross National Income of $116,699 per capita (Suneson, 2021).

Furthermore, the unemployment rate in the country remains the lowest in the world of just

0.2% in 2021 (Statista, 2021). Qatar is significantly reliant on the petroleum industry despite

having the world's third-largest known natural gas reserves (after Russia and Iran) (BTI,

2022). The inflation rate of Qatar for 2021 was calculated to be 2.3% (Worlddata, 2022). The

GDP growth in 2021 was 1.52% which was 5.2% increase as compared to 2020

(Macrotrends, 2022b).

Social: Qatar is a small country with a total population of 2.9 million as of 2021

(Worldometer, 2021). 25% of the Qatar population is female while the rest is male. The

country has diversity in its population as only 15% of the country’s residents are Qataris

while the rest are form other countries such as other Arabs, Indians, Bangladeshi, Chinese

(Kemp, 2022). Arabic is the officially spoken language in the country while people also

understand and speak English. The country has relaxed work culture with crime rate being

quite minimum. The educational and literacy rate in Qatar is increasing yearly with 93.46%

in 2017 (Macrotrends, 2022a).

apart, Qataris have the legislative, the judicial, and the executive. Lacking the envisaged

elected parliament, it is difficult to discuss the legislative process, much alone the separation

of powers, in Qatar. The emir's privileged status and widespread regard and admiration make

the court's authority more symbolic than actual. According to Article 35 of the constitution,

all citizens of Qatar are treated equally and cannot be treated differently because of their

religion, nationality, gender, or skin colour (BTI, 2022). The rule of Qatar ensures that the

country citizens abide by the law and has no place for corruption by individuals.

Porter’s 5 Forces

Porter’s Five Forces Analysis-Tesla

Bargaining power of buyer Uncertain

Bargaining power of supplier Low

Threat of new entrants Low

Threat of substitutes High

Industry rivalry Low but increasing

Bargaining power of buyers: the bargaining power of buyers in the electric vehicle industry

is uncertain. There are fewer electric vehicles manufacturers thus the undifferentiation of

products is high which results in a higher price being charged by the company for electric

vehicles (Chen, 2022). The number of customers is also increasing for Tesla as more people

are becoming aware of environmental implications of diesel and gas usage.

Bargaining power of suppliers: the bargaining power of suppliers in the automotive industry

is low. This is because the number of suppliers of electric vehicles battery and other materials
are low. Furthermore, the cost of switching to other suppliers for big giant like Tesla is

minimum (Chen, 2022). Both these factors result in low bargaining power of suppliers.

Industry rivalry: The industry rivalry is low but increasing rapidly as more market leaders are

entering and disrupting the monopoly of Tesla in the electric vehicle industry (Chen, 2022).

Although the competition is not fierce in the electric vehicle industry, but with growing

technology and energy consumption there will be more firms entering the industry in future.

Country Selection/Country Attractiveness

From the above analysis, it can be concluded that Qatar is the right country for Tesla’s

next expansion. This is because Qatar has a growing economy, stable political conditions,

legal work environment with a motivated working force.

Mode of Entry

Joint Venture

A joint venture is a business arrangement created as a result of two or more entities

that decided to share ownership, risk and return and governance for a period of time. The

purpose of forming a joint venture can be numerous from producing a new product to

generating more sales etc. For instance, Sony Ericsson was a joint venture owned and

controlled by two large separate entities, Sony Group and Ericsson in 2000 in order to be the

world leader in mobile phones.

Mergers and Acquisition

Mergers and acquisitions are a business transaction which involves joining two

companies or business entities into one. M&A involves consolidating the financial

transactions between companies which allows them to enjoy the benefits of synergy. One of

the most famous examples of this is the acquisition of Android by Google.

The mode of entry that will be chosen by Tesla to enter Qatar is licensing. Licensing

is when the business provides the right to another person by providing business know-how,

proprietary assets, and the right to carry out business activities and operations in return for a

fee called royalty fee. The licensor, Tesla, may provide the license for a certain period of time

after which the license will end, and the licensee will no longer produce the electric vehicles.

However, the rights are limited in licensing as compared to franchising. Thus, instead of

manufacturing electric vehicles and exporting them to Qatar, Tesla can extend its license to a

manufacturer in Qatar where the electric vehicles will be produced and sold in the country

thus avoiding the transportation cost for Tesla.

The main benefit of licensing for Tesla is to reach new markets for a period of time

without having to incur the cost of exportation. Furthermore, licensing will allow Tesla to

capture a new market and increase its sales. Through licensing for a period, Tesla can also

evaluate its market demand in Qatar and find out if the company should expand into the

country permanently through different mode of entry (Harris, 2021). Another major

advantage for Tesla would be that it will not face risk of large capital investment in a new

country as the operations of Tesla would be carried out by licensee. However, Tesla will have

less of a need to adjust to these variations as it can get into a technology license arrangement

with a local firm in Qatar. This will allow Tesla to expand without going through the issues

of cultural differences as the local licensee will have the cultural knowledge and

understanding of business environment that would enable the licensee to carry out Tesla’s

operations with more ease than Tesla’s management would have.

Managerial/Organizational Issues

The three types of managerial/organizational issues that can be faced by Tesla during

its expansion in Qatar are:

manage the employees and workflow of the company. The consequences of this ultra-

lean strategy include overcrowded workspaces and prolonged turnaround times for

maintenance and repair work. In the future, Tesla will need to concentrate on raising

its in-house body repairs, expanding its mobile services, and encouraging greater

workshop stock-keeping units in order to improve its Customer Service Index.

2. Cultural differences between United States and Qatar can serve as an issue for the

expansion of Tesla in Qatar. The corporate culture will also be affected as Tesla will

hire Qatari local workforce. English is the de facto business language for many

multinational corporations. However, the way in which one expresses is more

significant than the words being used. For instance, American culture involves getting

right into the business during meetings whereas Qatari corporate culture places more

importance on personal connections, so it's common to socialise for a while before

diving into serious matters.

3. Organizational coordination and communication will also be a challenge for Tesla

while expanding globally. There was a need for quick reactions and adaptability at the

company as a result of the process of internationalisation. However, when the

environment changes, so are the costs associated with maintaining order and control.

For this reason, striking a balance between organisational structure, culture and

adaptability is essential, especially for Tesla that needs to demonstrate a rapid

internationalisation process and respond to local needs. According to Gupta and

Govindarajan (1991), the degree of reliance, the direction of information flows, and

the function of the subunit all can serve as an issue and deviate the business from

optimal combination of mechanisms. Furthermore, coordination will be impeded

because of lack or poor communication. Miscommunication with newly hired team in

miscommunication amongst different branches of Tesla in different locations can all

pose an issue during expansion in Qatar. Another type of communication issue that

Tesla can face is the language barrier in Qatar and communicating with the locals.

Solutions

The solutions to issues identified above are:

1. Flatter organizational structure of Tesla promotes decentralization at lower levels

where individuals have the autonomy to make their own decisions supervised by few

leaders. This can be solved by introducing a hierarchical structure with layers of roles

and responsibilities. This will allow Tesla to appoint different managers, set up teams

and have roles defined for each team and its manager. This will also result in less

crowded workplace as each team would stay in their part of workplace unless

coordination is needed amongst different teams.

2. When expanding into new markets, many successful companies are realising the

importance of cultural sensitivity and diversity in building a competitive edge. The

worth of many cultural traditions motivates international trade. To expand

successfully, Tesla’s expansion leader must take into account the cultural norms of

the target nation, Qatar. Tesla should appoint a person in Qatar who is fluent in the

local language and familiar with Tesla’s value proposition and product positioning

which will make a huge impact. Customers are more comfortable when they know

they can reach a person in the same nation, who can communicate with them in their

native tongue and provide the service at a convenient time for them.

3. Communication is the key and solution to coordination issues that Tesla might face

while expanding. While there may be fewer middle managers between employees and

senior management, the channels of communication between the two should be

coordinating meeting times with staff, maintaining an open-door policy that

encouraged workers to bring up any issues or concerns, and facilitating chances for

teamwork. Furthermore, Tesla should appoint a person in Qatar who is fluent in the

local language and familiar with Tesla’s value proposition and product positioning

which will make a huge impact.

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