Business Organisations and Environments in a Global Context
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Organisation, especially the high-performing ones wants to build economies of scale. They seek expansion opportunities into new markets by making use of their resources and potential. The market opportunities are different in different countries, especially those that are developed. In order to succeed in the international market, companies prepare growth strategies. This is a business report that talks about the international expansion of Tesla Inc., in Japan. It will provide a brief information about Tesla and how it works. A small discussion of its expansion strategies in other countries will be highlighted. Along with it, the market study of Japan for the Tesla product will be done. Market environment analysis tools will be applied, especially the PESTLE. In addition to this, an analysis of business conditions will also be done.
Background Information on Tesla Inc.
Tesla Inc. is the fastest growing organisation in the world that manufactures electric-powered automobiles and clean energy devices. It was founded in the year 2003 by a two engineers Marc Tarpenning& Martin Eberhard. The current workforce count is more than 45000 and the net revenue in the year 2017 was US$ 11 billion and the net income recorded was US$ 1.9 billion. However, the most recent figures have been given by 'Teslarati'. It says that Tesla's second quarter income in 2018 is more than US$ 4 billion in revenue. It produces clean energy and devices to store it. The motive is to create a zero-emission world. Its mission is "to accelerate the world's transition to sustainatheble energy." The main functions of Tesla's automotive segment are to design, manufacture, and sale of fully electric-powered vehicles. Since it targets the only elite class people, targeting them also comes under its functions (Tesla.com., 2010).
Tesla benefits by employing competencies in vehicle engineering, powertrain engineering, energy storage, and innovative manufacturing. The majority income of Tesla is generated in the local market of the USA. However, the company is aiming at expansion in the international market. Tesla is about to penetrate in the European and Asian automobile market in order to diversify the net income stream. It is important to understand how Tesla has tapped into the Norwegian automobile market. According to Mangram (2012), Tesla has adopted the global standardisation in order to tackle the high pressures from the market to reduce the cost of its products. Tesla is focusing on three crucial consumer segments in order to offer its services to them. It came up with sports cars, sedan and SUVs, and mainstream automobiles. Norwegian market offered transactional homogeneity to the market segment. This benefits Tesla by imposing lower exertions for local responsiveness. This helps the company to offer standardised services and automobiles with meagre differentiation across the market. Tesla knew that it is going to face pressures from the market to reduce its selling price. To handle it, Tesla launched its cars in order to grab the attention of private car owners who belong to an elite class. Consumers have low switching cost while purchasing combustion engine cars in comparison to electrically powered cars. In addition to this, the company also faced technological constrained and high operational fixed costs and R&D cost.
The most important aspect of international expansion is selling the finished services. Tesla does not believe in advertising and establishing a big dealer network. Therefore, it does not make use of traditional targeting methods, such as radio, TV, print media, etc. Instead, the company chooses behavioural targeting methods. It believes in product development and let its product speak for the company. After its first gigafactory in Nevada, USA becomes a success, it is aiming at setting up another in Japan. Currently, it imports many parts for its electric cars and other automobiles from the Japanese suppliers. But now, it is aiming at expanding in Japan by a unique strategic and marketing approach.
Background Information on the Business Environment for Tesla in Japan
Japan has the dominance in the global automobile industry since the past 7 decades. The automobile industry of Japan is dominated by Toyota Motors, Honda, and Nissan. Apart from these, the supporting industries, such as Calsonic Kansei and Denso Corp., play a crucial role in feeding them with their car parts (Ahmadjian& Lincoln, 2013). As per the report of Oxford Economics, the share of Japan in the global auto industry has increased from 18.1% in 2012 to 19.1% in 2016.
The big brands like BMW, General Motors, Tesla, etc., rely on Japanese suppliers for their manufacturing requirements. The reason for Tesla to invest in Japan and set its gigafactory there can be based on many factors (Higman, 2015). The first is that it is the power house of innovation and technology revolution. Being the world's third largest GDP, its economy has 10% contribution in the world's economy. In addition, it is the world's third largest car manufacturing and technology (japanstrategy.com, 2016). The revenue of its automobile industry is greater than the overall GDP of Netherland. Nearly 8.7 per cent of the working population is employed in the automotive industries. There are nearly 78 car manufacturing plants in Japan. There are more than 600,000 jobs in the car parts manufacturing industries. In addition to this, 390,000 jobs are allocated in industries that feed the parts manufacturing and car producing companies. There are many foreign investors who are showing a keen interest in the human capital of Japan in order to develop and produce automotive goods.
There have been many market ups and downs in the past five years, but the car production in the Japanese automobile market remains almost the same. The data provided by JAMA clearly reflects that the sales in the year 2016, 2017, and 2018 (first two quarters) have remained almost the same with a slight difference. This is due to the continuous development of the products and strong investment in the market research and development. According to the Japanese Times, the grand automobile companies, such as Toyota, Nissan, and Mitsubishi have maintained their market position from decades due to their strong R&D facilities and global headquarter in Japan (Ritholtz, 2013). If a car company like Tesla wants to tap in the Japanese market, then it should have strong ties with its suppliers. In addition to this, the option of large conglomerates is also a viable alternative for the companies to expand their business operations in Japan as it was done in the case of Renault-Nissan-Mitsubishi alliance.
Prospects for Tesla in Japan
Many economists have predicted that the present time is the right time for Tesla to strike a chord in the Japanese market. The reason being the efforts from the Japanese government to promote the emission-free cars and other vehicles. Japan can be the future's largest e-cars market. Since the people in Japan prefer luxury goods and services, targeting the elite class customers will not be a problem for the company. Moreover, Japan is aiming at launching driverless car systems that will be using the Artificial Intelligence technology (Shepard, 2018).Tesla is the leader in the field of self-driving cars. It has developed a one of its kind AI hardware. It has completely transformed the world with its technological innovation. The government of Japan is promoting electric vehicles that are environment-friendly. It is ready for making an investment in the field of electric-powered cars by installing battery charging stations in the cities. In addition to this, the perks and tax relaxation to the eco-friendly organisations. Being an OECD country, Japan has "Eco-Innovation Policies" that promotes eco-friendly innovation in the country (Ekins, 2012).Initiatives are being taken to set environment-related performance standards in order to stimulate innovation in the car manufacturing industries and reduce their carbon footprint.
Analysis of the Business Scenario
Since the Japanese Market is one of the dynamic and fastest growing markets in the world, it is required from the companies to have an in-depth study of it. There are numerous ways to do it. Many organisations are making use of scenario planning, critical success factor analysis, PESTLE, and Porter's five forces in order to study and analyse the market. Here, PESTLE and five force model have been employed to study the macro-environment of Japan automotive industry. Both are discussed below:-
PESTLE for Japanese Automotive Market
Japan is the country located in East Asia and sharesthe neighbourhood with countries, such as China, North and South Korea, Taiwan, Russia, etc.
Political Factors: Having a constitutional monarchy, the powers of the King is limited. The major business policies are defined by the government. The foreign direct investment policies, the investments, the subsidies, allocation of land in the Socio-economic zones in the country, the control over inflation rate and GDP growth in the country all depends on the decisions made by the government in the direction to strengthen its economy (Ritholtz, 2013). Since the relaxation of taxes for eco-innovation is also a part of the government agenda to safeguard the environment of the country and promote the economic growth of Japan, Tesla can make use of it as an opportunity.
Economic Factors: Japan has witnessed the "concept of the free market economy" along with "free market economy." Japan has emerged out as one of the highly developed countries in Asia. As an economic power, it is a part of APEC (Asia-Pacific Economic Cooperation). In addition to this, it has a strong bond with ASEAN. It donates nearly .25% of its GNI for development efforts and international aid. The automotive industry in Japan is affected by factors, such as GDP growth, per capita income, inflation rate, and poverty and unemployment rate, FDI stock, imports and exports. All these have to be considered by Tesla Inc., before tapping in the Japanese market (Kumar & Yamaoka, 2015).
Social Factors: Social factors are quite complex to determine. These factors include demographic and cultural factors. In the case of the automobile industry, social factors are quite different. The customers will go with the brand name. The demographics of person, family size, income class, buying pattern, etc., affect the sales of automobiles in the market. Tesla has an advantage in Japan because people are conscious about the environment and they would be ready to spend more money just for eco-friendly cars (Shepard, 2018).
Technological Factors: Japan is the powerhouse of the automotive and technological innovation and this is why the Japanese companies are dominating the global car manufacturing industries. Japan is known for its automation and robotic inventions. The car manufacturing companies can avail automated machines in car manufacturing which are available to them at a reasonable amount (Pillot, 2015). Tesla is also importing car parts from Japan. Therefore, setting up a plant armed with the most advanced technology can help in reducing the manufacturing and operating fixed cost.
Environmental Factors: Japan government is very concerned about its natural environment and it has been forming environment-related policies and regulation overtime. This is due to the environmental disasters in the early 50s and 60s. Being a member of OECD countries, it has been formulating policies for eco-innovation and reduce the consumption of fossil fuels (Ekins, 2012). In addition to this, the Japanese government is leading the international campaigns to protect and conserve the global environment. It provides incentives and subsidies along with the tax relaxation. All that is required by Tesla is to abide by the environmental protection laws and policies.
Legal Factors: The Law of Japan is based on the European legal system. Organisations operating in Japan has to follow Corporate Law, Trademark Law, Employment Law, Health and Safety regulations, Labour law, Consumer Protection Act 2000, etc.
Porter's Five Force Analysis
Bargaining power of the suppliers: There are many suppliers who are ready to feed the demands of car manufacturers in the Japanese automobile industry. This has put a huge pressure on the suppliers to agree on the price proposed just to secure a contract. Therefore, the bargaining power is very low for the suppliers. This is a very good condition for Tesla to enter the Japanese market (Neely, 2016).
Bargaining power of the Consumers: Since the majority of market share is own by Toyota, Honda, Mitsubishi, Suzuki, and Daihatsu. With such a large number of options are available with them, buyers have a strong command over the market. The bargaining power of consumers is high and which is not favourable for Tesla (Shende, 2014).
Threats from New entrants: The entry in the e-car industry is not easy as new entrants may face a high cost of entry in the market. Manufacturing and operating cost are very high that demotivate the rise of new entrants. In addition to this, in order to gain the share in the Japanese automobile market, an organisation needs a highly differentiated product. The threat from new entrant is very low.
The threat from Substitutes: The Japanese government is trying to launch self-driving cars by 2020. Tesla has a lot of expertise and thus, it can help the government in this. There is no substitute till now for Tesla'sin the Japanese market. However, Nissan is also developing its other non-combustion technology but Tesla has more reputation and brand image. Therefore, the threat from substitute is very meagre in Japan (Ritholtz, 2013).
Competitive Rivalry: It is well-known that combustion cars are cheaper and middle-income group people can afford them easily. On the other hand, electric cars are a bit expensive and Tesla's products are mostly for the elite class. Tesla can face competition from Toyota, Nissan, Renault, Ford, and General Motors in Japan. However, in the elite class car market, this can be of moderate level. This can affect the decision-making and strategic planning of Tesla (Neely, 2016).
In the due course of preparation of this report, it was seen that the market opportunities are different in different countries, especially those that are developed. In order to succeed in the international market, companies prepare growth strategies. In this business report, the international expansion of Tesla Inc., in Japan was discussed. It providedbrief information about Tesla and how it works. A small discussion of its expansion strategies in other countries was done. Along with it, the market study of Japan for the Tesla product was done. Market environment analysis tools were applied, namely PESTLE and Porter's five force model. In addition to this, an analysis of business conditions was done.
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