Global Marketing: Tesla Motors
This paper is based on an existing company which currently has a well-established market in the home country, but no current international business. In this case, the company selected is Tesla Motors, and the background of the company is detailed in the first section of this paper. The paper then aims to identify potential foreign business opportunities for Tesla Motors, and how both new and existing products from the company may be introduced to the international markets identified as suitable, through local investment.
1. Company Background
Tesla Motors are a company based in Silicon Valley, California, who design and manufacture electric cars. The company’s mission is to provide high-performance electric cars to the consumer, with vehicles which do not sacrifice design, comfort and driveability for the more environmentally-friendly fuel propulsion method which they use. The flagship vehicle for the company is therefore their Tesla Roadster, a sports car which is designed to run 200 miles on a single electrical power charge, offering all the features which would be expected of a petrol-driven sports vehicle (Tesla Motors, 2009).
The company had some issues in early 2009, with the credit-crisis and recession creating problems for the company with raising capital for development of new models. The U.S. Government awarded a significant portion of the cash stimulus package to the company however, as well as offering tax credits on the Tesla cars to the consumer. All this has further aided development and allowed Tesla to build a substantial customer base in their domestic market (Phoenix CEO-CFO Group, 2009). Now that the company has established a substantial sales rate in the U.S., it would indicate that to further expand the business and recoup much of the outlay tied up in the loans from the Government, Tesla needs to look at entering overseas markets to further increase sales.
2. Country Market Choice
It had already been identified that Tesla Motors was planning on developing their business into the European marketplace (Phoenix CEO-CFO Group, 2009), so the countries which were examined as possible market choices were the UK, the Netherlands, Belgium, Monaco, France, Ireland and also Australia, as they have a substantial new car market, are open to alternative fuel vehicles and have a growing imported car market (Hogan, 2009).
2.1 Risk Criteria
There were several different risk factors which were identified as being relevant in assessing the suitability of any of these international markets to the launch of Tesla Motors’ products (Muhlbacher et al., 2006). This led to the development of a set of risk assessment criteria, which were:
· Geographic proximity – this will determine the logistics and costs of importing products and also of initial set-up for overseas operations
· Political risk – this is important on the basis that the products sold by Tesla require after-sales service, requiring local investment to set-up and run the facilities to provide this care; in addition, government-run incentives may be crucial to the performance of the product, for example in the U.S. where the purchase of electric cars is quite heavily subsidised
· Legal system – with an innovative product such as those being produced by Tesla, it is not desirable to enter into a market without appropriate protections for design and intellectual property
· Quality of local infrastructure – this is important in terms of logistics and supply whether the product is to be manufactured in-country or imported
· Availability of a trained labour force – this is likely to determine whether it would be possible to construct the product in the country selected
· Economic stability – this is likely to heavily influence the potential for sales of such an expensive product; Tesla products cost more than many other similar products, which means that in countries with an unstable economy demand may not be consistent, which will impact profits
· Cultural influences – the readiness and popularity of alternative fuels and the style of cars produced by Tesla is likely to be influenced substantially by cultural influences
· Substance of the local market – this is comprised of the size of the current market as well as the predicted growth
From the risk assessment criteria which were identified above, three countries were selected for further analysis, and were the UK, the Netherlands and Belgium. Although Australia was possibly the lowest geographical risk of the countries analysed, in terms of being closest to California, the infrastructure in much of the country was determined not to be particularly conducive to entering the market. In addition, the markets in the countries of UK, the Netherlands, Belgium, France and Ireland were determined to be those with the lowest risk in terms of the substance of the market and economic stability. Ireland was then eliminated due to a higher risk in terms of a skilled labour force, and finally it was decided that the UK, the Netherlands and Belgium had the lowest risk politically, as each of these countries has in place plans to heavily subsidise the purchase of electric cars (BBC News, 2009).
2.2 Market-Portfolio Matrix
The figure below presents the Boston Client Group (BCG) Growth/Market Share Portfolio Matrix (Kuhn, 2008), featuring the analysis of the electric car market in each of the three countries selected above: the UK, the Netherlands and Belgium.
This analysis shows that in each of the three countries the current market situation for electric cars is quite similar. That is, each of the three is considered a question mark on the matrix. This indicates that there needs to active effort to grow this section of the car market, and then the market may develop into one which is truly profitable. This does however indicate that the potential for the UK market is the most promising, based on this being the largest of the three markets overall.
From this analysis alone, it may however be quite difficult to determine which market is the optimal choice for Tesla to pursue, since the placement of the three different markets is actually very close on the diagram. In fact, it is only really the size of the market which is clearly different on the diagram, indicating that further analysis may be helpful in determining which market to select.
2.3 SWOT Analysis
Here, the SWOT analysis for each of the three countries (UK, Netherlands, Belgium) are also presented to make a better informed decision about which would be the most appropriate foreign market for Tesla to enter.
The desired goal of entering the market would be to grow the customer base of Tesla and increase company profits through investment in the foreign country selected. The SWOT analysis based on this goal for each of these three countries is then:
· The products offered by Tesla are well-suited to the market in the UK, where sports car sales are strong and have increased in recent years (BBC, 2009b)
· It is the first venture of the company into a market outside of the U.S. which means that the company may not be fully prepared for the demands of the UK market
· The UK Government has recently announced plans to subsidise purchase of electric cars (BBC, 2009)
· The previously strong British car market means that the infrastructure and labour force in the UK would be well-prepared for production of Tesla products
· The UK car market is strong, with many families owning more than one car
· The new car market in the UK has recently slumped (Pollard, 2008)
· The current market share of the electric car in the UK may indicate that some effort may be required in increasing the popularity of this type of vehicle as they do not currently appear to be being well-received (Baker, 2008)
· Electric cars appear to be becoming more popular in the Netherlands, so the products offered by Tesla may be well-suited to a growing area of the market
· These are the same as for the UK market
· The language barrier and different culture of the mainland Europeans may also provide somewhat of a barrier to the company
· Although there have been no subsidies as such announced, one incentive in the Netherlands for purchasing an electric car is that road tax on electric vehicles has recently been abolished (Dutch News, 2009)
· Car sales in the Netherlands have also decreased during the financial crisis
· These are the same as for the Netherlands market
· These are the same as for the Netherlands market
· The lower cost of cars on the continent may also encourage higher levels of new car sales than in the UK, and most families own two cars
· Belgium has also experienced a significant slump in new car registrations since 2008 (Reuters, 2009)
Based on these three different SWOT analyses for each country, it would appear that there is a balance of strengths and weaknesses in Tesla products for each market, as well as a balance in threats and opportunities in each of the three markets. This would therefore indicate that the findings need to be considered along with the previous findings discussed in the report to make the final selection of the optimal market for Tesla to enter.
2.4 Chosen Country
Based on the different analyses conducted, the UK was selected as the best market for Tesla to aim at entering as their first foreign venture. Based on both the risk criteria and the SWOT analysis, the UK may present less cultural and language barriers to Tesla as an American company, which may therefore indicate that it would be ideal as a gateway to the rest of Europe. In addition, each of the countries is associated with market risk in terms of a dip in the rate of new car purchases and a poor current market share of electric cars. At the same time, the UK government appears to offer more opportunities through large subsidies for electric cars, as well as having an infrastructure and labour force in place for Tesla to invest in at lower risk. Finally, the UK new car market is also much larger than the other two countries’ markets, therefore indicating the greatest potential.
3. Selected Market
In terms of the four Ps in the Marketing Mix, it is likely that much of this may be easily adapted from current operations in the U.S. The product itself is likely to be suitable for the UK market, although further market research may be required to tweak the model slightly to UK preferences. The place at which the product is sold could take one of two options. Initially it may be beneficial for Tesla to sell their products through existing dealerships in the UK, of which there are many, although in the long-term there is suitable infrastructure for Tesla to set up their own dealerships. In terms of promotion, this too would take a similar path to the promotion channels used in the U.S. In the U.S., the price of a new Tesla Roadster is $40,000 (Tesla, 2009), and it is possible that pricing could be maintained at a similar level in the UK given that £5,000 subsidies will soon be available to consumers.
3.1 Product Policy
The product itself would also need to be modified to create a product with right-hand drive rather than left-hand drive, although this would involve only manufacturing changes rather than a complete change of design.
It is likely that most elements of product policy could be maintained in the UK market from the U.S. version, as there are far less cultural barriers between the two than there would be with other European markets. This means that branding could probably be retained in the same way as in the U.S.
As with branding, the cultural similarities between the U.S. and the UK indicate that the packaging and labelling could be retained, although this is minimal with car sales.
The production processes would be the same as those in the U.S., although consideration would need to be given as to whether this should be done in the home country or in the UK.
After Sales Service
The main element which may be necessary to adapt would be the after-sales service, as this would need to be adequate to meet strict UK legislation.
3.2 Entering the Foreign Market
Mode of Operation
As mentioned above, the preferable mode of entry for Tesla to use initially would be to import their cars, as this would give ample opportunity to test the market for suitability and allow for tweaking to customer preferences in the new market.
Production at Home or in the Foreign Market
The UK does however have suitable infrastructure and experience which would allow Tesla to further develop to manufacturing in the UK if this proved to be more profitable. Given the level of after-sales care which is necessary with cars, Tesla would definitely need to invest locally for this purpose, although this could initially be done through partnerships utilising existing dealerships and then extended to their own centres once the Tesla brand had been built.
Distribution System in Foreign Market
The distribution channels used could also exploit existing infrastructure and dealerships to begin their entry to the UK market, and this would help to overcome some of the issues with foreign logistics.
The cultural similarities between the U.S. and UK should indicate that it would be relatively simple to set up logistics in the UK, and the infrastructure in the UK is ideally set up to allow for import from the U.S. and distribution to customers.
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