Analysis of Incumbents and Challengers in the Automobile Industry: Toyota and Tesla

This report analyzes the relationship between incumbents and challengers in the automobile industry, with a focus on Toyota and Tesla. The research reveals that Tesla has the capability to beat Toyota in the electric car industry for the purpose of acquiring the position of the incumbent in the industry.

Running head: ANALYSIS OF INCUMBENTS AND CHALLENGERS
ANALYSIS OF INCUMBENTS AND CHALLENGERS
Name of the Student
Name of the University
Author Note

1ANALYSIS OF INCUMBENTS AND CHALLENGERS
Executive Summary
This report is based on the analysis of the ways by which the incumbents in the industry are
provided tough competition by the challengers. The two organizations which have been
considered for the analysis of incumbents and challengers are Toyota Motor Corporation and
Tesla Motors. Toyota is the leader in the automobile industry and Tesla is the challenger. The
research has been able to reveal that Tesla Motors has the capability to beat Toyota in the
electric car industry for the purpose of acquiring the position of the incumbent in the industry.
This can be achieved with the help of the manufacturing and marketing based activities of the
organization.

2ANALYSIS OF INCUMBENTS AND CHALLENGERS
Table of Contents
Introduction....................................................................................................................3
Literature search on reasons behind the relation between incumbents and challengers 4
Examples of incumbents and challengers......................................................................6
Conclusion......................................................................................................................8
References......................................................................................................................9

3ANALYSIS OF INCUMBENTS AND CHALLENGERS
Introduction
The incumbent with respect to the business perspective is the leader in the industry
which has large share in the market as compared to the other organizations. The incumbent
organization is much more powerful in the industry in comparison to the others who have
their operations in the same area. The different business relationships and standings are
thereby defined with the help of the term incumbent. The relationships that are develop
within the suppliers and the organizations are defined with the help of term incumbent. The
incumbents in this case are those suppliers who have been able to capture the market before
the others. The challengers in the business are those who are able to challenge the
incumbents. The organizations which challenge the share that is held by the incumbent
organizations in the market are thereby termed as challengers (Ashworth, de Mesquita &
Friedenberg, 2017).
The report will be based on the thorough research based on the ways by which the
incumbents are provided tough competition in the market by the challengers. The two
organizations which are considered for analysis in the report based on the relationship
between incumbents and challengers are Tesla and Toyota. Tesla is an American
multinational organization that was established in the year 2003 and has its base in Palo Alto
California. The organization mainly specialises in the production of electric vehicles and its
supply all over the world. The best-selling car of Tesla in the world is Model S. The company
operates many production plants and assembly plants. Tesla is a challenger in the market with
respect to the production and supply of electric cars (Tesla., 2018). Toyota Motor
Corporation or Toyota is a Japanese multinational automobile organization. The company has
been able to acquire the position of the first automobile organization in the world to have
acquired the position of selling the highest number of vehicles within a year. Toyota has also

4ANALYSIS OF INCUMBENTS AND CHALLENGERS
started its operations in the production of electric vehicles and has been able to challenge
Tesla Motors with the help of variety of models (TOYOTA MOTOR CORPORATION
GLOBAL WEBSITE., 2018).
Literature search on reasons behind the relation between incumbents and challengers
As discussed by, Ban, Llaudet and Snyder Jr (2016), the challengers who enter the
industry with the help of new and innovative products for the customers are often capable of
providing tough competition to the incumbents or the leaders in the market. The incumbent
position that is held by an organization in a particular industry is not constant in nature and is
vulnerable to change that take place in the external environment. The success that has been
experienced by the organizations is not able to prepare them for the changes that can rapidly
take in their position in the market. The incumbents in the market are therefore highly
vulnerable to the disruptive innovators who enter the market.
As argued by, Biersack, Herrnson and Wilcox, (2016), the disruptors who are able to
gain success in industry are able to create a profitable position within a short period of time.
These organizations are further able to bring something new to the market as well. The
disruptive innovators are thereby capable of challenging the dominating position that is held
by the incumbent in the industry. The challengers can thereby shake up the market position
that has been held by the incumbent and then acquire the same position with the help pf
products and services. The challengers also provide something new to the industry in which
the organizations operate. The incumbents in the industry always have an advantage over the
other organizations who are entering the market (Christensen, Raynor & McDonald, 2015).
The market leaders however always have to think about the ways by which they can
save their shared in the industry with the help of different strategies, products and services.
The incumbent organizations thereby cannot fall prey to the challengers who enter the market

5ANALYSIS OF INCUMBENTS AND CHALLENGERS
in an easy way. The market leaders have huge advantages that are provided to them by the
industry in which they have their operations. The source of the advantage that is provided to
the organization by the incumbent position include, deeper insights which the management
has in the needs and desires of the customers. The market leaders are able to understand the
profitability of serving the customers in a better manner as compared to the challengers.
According to, Eckles et al., (2014), the most important advantage that has been gained
by the incumbent organization is based on the knowledge that the management has based on
the profitability levels of the different customer segments. The incumbent organizations
thereby need to exploit the advantages that are provided by the industry in order to face the
challengers in an appropriate manner. The accounting system of the organization can also
play an important role in the ways by which it is able to compete with the challengers. The
challengers tend to bring new technologies in the industry which can attract the customers in
an effective manner. The marketing related activities of the organization are important for the
ways by which it can challenge the incumbents (Klašnja, 2015).
Research and development also plays a major role in creating a profitable position of
the challenger in the industry. The research and development can help the challengers to
introduce new technologies and methods that can be helpful for the successful operations of
the challengers. The position of the market leader can be shaken easily by the challenger
organization with the help of new and improved technologies. However, the challengers are
not able to judge the needs of the customers like the incumbents. The challengers thereby
need to gain the trust of the customers before it aims at challenging the market leaders with
the help of its products (Kumaraswamy, Garud & Ansari, 2018).
The resources that have been gained by the market leaders with the help of their
operations in the industry also acts as their strong advantage in the industry. The challengers

6ANALYSIS OF INCUMBENTS AND CHALLENGERS
also face a substantial lack of resources which acts as a major factor in the lack of profits.
The advantage that is gained by the incumbents in the market is not used in an effective
manner by many organizations in the industry. This provides a huge advantage for the
challengers to capture the market and gain a significant share in the market. The resources
which are possessed by the incumbents are not used optimally which further opens up new
chances and avenues for the challenger organizations in the industry. In this manner, the
challenger organizations are able to beat the incumbents in the industry (Layton, 2015).
Examples of incumbents and challengers
The situation which has been created in the automobile industry currently depicts that
Tesla is far behind the other organizations in the manufacture of supply of cars. The largest
competitor of Tesla in this case is Toyota which is considered to be a market leader in the
electric car manufacturing industry. The gap that has created by the low production rates of
Tesla can be slowed down further with the help of entry of Tesla in the mid-priced market
with the help of its product named Model 3. The quality of the products that are
manufactured by Tesla in the market can be an important factor which will affect the
operations of the organization and its profitability as well (Rey-García & Mato-Santiso,
2017).
The products that are developed early in the market are not the best which are offered
by the company. Tesla is thereby aiming at improving the levels of product so that it is able
to compete with Toyota in the electric car industry. The incumbent position that has been
gained by Toyota in the market can be utilised by the company so that is able to maintain the
shares that it has gained in the industry. The marketing based activities that have been
conducted by Tesla is an important part of the entire operations of the organization (Snihur,
Thomas & Burgelman, 2017). The company has been aiming at creating a profitable position

7ANALYSIS OF INCUMBENTS AND CHALLENGERS
in the automobile industry. The most important functions that have been planned by Tesla to
provide competition to Toyota is include many different steps which are include,
Keeping number of models which are to be designed by the company to the
minimum amount.
The number of parts that are used by the organization to the design different
elements are also kept at a minimum.
The production of the parts is done within the organizational premises in an
internal manner (Snihur, Thomas & Burgelman, 2018).
The normal aspects based on quality assurance of the organization are skipped.
The creation of worker unions is prevented so that the company does not have
to face any issues.
The organizational processes are automated in an effective manner.
Tesla, as a challenger has been able to cause high levels of disruption in the industry
and has always tried to exploit the advantages that are provided to a niche manufacturer. This
process will be helpful for Tesla to create a leading position in the industry. Toyota on other
hand has also exploited the advantages and the resources that have been created by the
company over the years of its operations in the automobile industry. The organization has
constantly invested in the marketing and research and development based activities so that it
is able to compete with the challengers in the market (Svensson & Persson, 2016).
The topmost position which has been acquired by Toyota in the industry is a huge
advantage that has provided opportunities to the organization to succeed. Tesla, is a
challenger in the industry to Toyota and the organization is going forward fast enough to
acquire the position of incumbent in the industry. Tesla has the full capability to capture the
automobile market and beat the successful operations of Toyota Motor Corporation in the

8ANALYSIS OF INCUMBENTS AND CHALLENGERS
automobile industry. Toyota has however shown high levels of focus on the manufacturing of
excellence and also delivering outstanding quality to the customers (Vecchiato, 2017).
The company has valued the customers highly and further tried to fulfil their needs
and demands. The manufacturing process of Toyota is considered to set a standard in the
industry. However, the manufacturing process of Tesla is capable of disrupting the operations
of Toyota and further to become the largest automaker in the world. The number of cars that
are sold by Toyota are quite high as compared to Tesla. However, the Tesla cannot be judged
properly with the help of these numbers as the company is quite new to the operations. The
market capitalisation that has been gained by Tesla in the automobile industry is quite low
(Yin, Ansari & Akhtar, 2017). The recent numbers of Tesla have been quite disappointing
which can be improved with the help of the products and services that are offered by the
company to the customers. Tesla has the entire capability to beat the operations and
profitability of Toyota Motor Corporation in the industry and create its topmost position in
the market as well. This is the most important part of the entire discussion which is based on
the research of the ways by which the challengers in the industry are able to beat the
incumbents (Svensson & Persson, 2016).
Conclusion
The report can be concluded by stating that the literature research of the relationship
between the incumbents and the challengers has been able to support the statement that they
are able to beat the market leaders. The two organizations which have been considered for the
analysis in the report are Toyota and Tesla. Toyota is the leader in the market and Tesla is the
challenger. Toyota has created a strong in the international automobile industry with the help
of its products. However, the challenger has been able to provide tough competition to the
operations of Toyota with the help of marketing activities and manufacturing processes as

9ANALYSIS OF INCUMBENTS AND CHALLENGERS
well. The research has further been able to reveal that Tesla Motors has the capability of
beating Toyota Motor Corporation in the automobile industry in the future. The electric car
industry is thereby based on the huge competition that has been given by the challengers to
the leaders in the market.

10ANALYSIS OF INCUMBENTS AND CHALLENGERS
References
Ashworth, S., de Mesquita, E. B., & Friedenberg, A. (2017). On the Incumbency Advantage.
Ban, P., Llaudet, E., & Snyder Jr, J. M. (2016). Challenger quality and the incumbency
advantage. Legislative Studies Quarterly, 41(1), 153-179.
Biersack, R., Herrnson, P. S., & Wilcox, C. (2016). Risky Business: PAC Decision Making
and Strategy: PAC Decision Making and Strategy. Routledge.
Christensen, C. M., Raynor, M. E., & McDonald, R. (2015). What is disruptive
innovation. Harvard Business Review, 93(12), 44-53.
Eckles, D. L., Kam, C. D., Maestas, C. L., & Schaffner, B. F. (2014). Risk attitudes and the
incumbency advantage. Political Behavior, 36(4), 731-749.
Klašnja, M. (2015). Corruption and the incumbency disadvantage: theory and evidence. The
Journal of Politics, 77(4), 928-942.
Kumaraswamy, A., Garud, R., & Ansari, S. S. (2018). PERSPECTIVES ON DISRUPTIVE
INNOVATIONS.
Layton, R. A. (2015). Formation, growth, and adaptive change in marketing systems. Journal
of Macromarketing, 35(3), 302-319.
Rey-García, M., & Mato-Santiso, V. (2017). Business-led social innovation in the work
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Management Research, 6(1), 1.
Snihur, Y., Thomas, L. D., & Burgelman, R. A. (2017). The Disruptor's Gambit: How
Business Model Disruptors Use Framing for Strategic Advantage. In Academy of

11ANALYSIS OF INCUMBENTS AND CHALLENGERS
Management Proceedings (Vol. 2017, No. 1, p. 11155). Briarcliff Manor, NY 10510:
Academy of Management.
Snihur, Y., Thomas, L. D., & Burgelman, R. A. (2018). An ecosystem‐level process model of
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Svensson, R., & Persson, L. (2016). The advantage of selling an invention instead of turning
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Tesla. (2018). Retrieved from https://www.tesla.com/
TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. (2018). Retrieved from
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Vecchiato, R. (2017). Disruptive innovation, managerial cognition, and technology
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Yin, E., Ansari, S., & Akhtar, N. (2017). Radical Innovation, Paradigm Shift and
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