Internationalization from Singapore to China
Introduction
Tesla is a company specializing in the manufacture of fully electric vehicles (or commonly known as EVs). Since 2004, the company has been able to shape its vision with the creative mind of entrepreneur Elon Musk. Musk is also a founder of two well-known companies such as Zip2 and Paypal, along with other business ventures. Musk is known to be a risk-taker, a quality which has served well for his success and for Tesla.
In 2008, the U.S. automotive industry has been experiencing problems in connection with electric vehicles. Its major setbacks were the occurring economic crisis, the general lack of acceptance of EVs, and the lowering of price of gasoline which led to a low demand for electric cars. However, the company rose above the setbacks and sold their first model in the same year, as well as two other models in 2012.
The potential of the company only seemed to grow. So in 2010, Tesla expanded into the Singaporean market. Due to the wealthy economy of the country, high bulk of car use, its clean and green policy, and the high tax policy on fuel-powered cars, it seemed that Tesla was on the right track in choosing this market. However, the company was not able to secure approval of the tax policy on its cars, and thus did not sell any cars in Singapore. The company suffered losses. The company tried to pursue the Chinese market afterwards. A decision is yet to be made regarding the matter.
Several questions need to be addressed before venturing into China. Will China be a good place for investment? Is the timing right for it? Are there past experiences in the U.S. and in Singapore that suggests that venturing into China will more likely succeed? An overall assessment of available facts need to be collated and cross-referenced to see possible weak points, as well as strong points, of the decision of expanding into the Chinese market.
Major Issues
Upon inspection of the experience of Tesla, four reasons primarily contributed to its downfall. Firstly, its selective market, due to the fact that they focused on high-paying customers; second, its failure to expand into the Singaporean market; third, due to its failure in meeting the demand for EVs during its high point in 2012; and fourth, its lack of brand development which led customers to choose other more well-known brands available. These four reasons highly affects the state of the company with regard to its venture into China.
The point of view of an outside business consultant will be used to study the case. The issues presented above will be thoroughly discussed one by one.
Firstly, in the United States, and in its formative years, Tesla has chosen to sell its cars at a high price to wealthy customers. This led to cars with overtly expensive features and non-flexible prices to other consumers. It was not an option for those with only average salaries. In a company’s early years, it is difficult to consider this option since the market for this option is very selective. The brand of the company is not established yet as well. It is also risky to invest a large sum of money on a newly introduced car since no assurance of its sales is foreseeable. The power of the common people’s word of mouth to spread the Tesla brand into the market is also not utilized in this scheme. A possible market strategy for Tesla could be to manufacture a cheaper car model especially for the masses. They may venture into the motorcycle industry as well, since motorcycles have smaller parts, is lighter, and will be easier to sell since it can be priced more cheaply compared to the electric cars. The engine of a motorcycle is also smaller, thus the problem of charging time is subdued.
Second point, the Tesla Company failed their business venture in Singapore. However, they have already invested on the site. Additionally, they failed to maximize the opportunities available in Singapore that were provided by the government and the features of the country in itself. Singapore also considered cars as status symbols, and a success in this country could have grown their company into one of the world’s famous cars for the affluent people. It is also their second country to venture into in Asia which could also increase their popularity. One root cause of the struggle in Singapore is the lack of communication to the Singaporean government in pushing their brand to avail the tax reductions, and the environmental subsidies. It could also be due to a faulty mindset such as leniency in selling, due to previous profitability and a safe fallback. Since no cars were sold in Singapore, it was a smart decision to withdraw the company from there. However, a preventive action could have been better. One of the courses of action that could have been taken was to use benchmarking, or the legal copying of some systems or processes of other organizations who are recognized by the Singaporean government. Since the problem experienced by the company was primarily due to the non-compliance of Tesla in technical requirements, they could have patterned some of their processes from Daimler, Mitsubishi, Nissan, and Renault. Although benchmarking would have taken some private negotiations, or even investing some money to learn about another company’s set of processes, the action would have profited the company in the long run.
Third problem, which caused further liabilities to the company, was their inability to comply with the demand for their cars worldwide. Among the 15,000 car reservations made to the company, only 2,650 cars were delivered in the time of their company’s growth. The shortcoming stunted the said growth afterwards. Moreover, in the 2,650 cars sold, the only region served by the cars was North America. They further decreased their market by doing so. They also built a bad reputation by not being able to produce the orders on their cars, and related their name to unreliability. This problem is probably rooted in a lack of time management. Also, a lack of communication, which have been noticed early on in the company, that did not allow for efficient handling of stocks, manufacturing, and quality analysis, as well as the people management. Although the problem cannot be limited to the lack of manpower development, it is one of the major problems, and could have been solved easily if only proper management was applied.
Lastly, expansion into China proved to be unlikely since the brand of Tesla has only proliferated in the U.S. and some minor areas in England. Previous ventures in Asia were not successful, and moving to China is very risky. The risks did not outweigh the advantages. The market in China had already been established, and competition is tough. There was no edge over at Tesla since their brand was not famous enough for the wealthy and not cheap enough for the average worker. Unless innovations will be introduced, this will hold true. A lot of problems, such as more investment of supercharger stations, will inevitably happen.
Conclusion
Overall, it is highly discouraged to move into China for the Tesla brand due to high competition, bad branding, and lack of innovations. Tesla must first develop its brand before venturing into bigger opportunities. The company must also learn to study the risks first, before making any big decisions. Lastly, key concepts in business such as good communication and time management must be relearned by Tesla to be able to succeed.
