MAN3090 International Business Strategy Exam: Tesla's US Market Entry

This report examines Tesla's strategic approach to entering the US auto market, analyzing key industry dynamics and challenges. It utilizes Porter's Five Forces and PESTLE factors to assess the competitive landscape, including industry rivalry, the threat of substitutes, and the bargaining power of buyers and suppliers. The analysis evaluates Tesla's positioning, its differentiation strategy in the electric vehicle (EV) market, and its ability to compete with established manufacturers. The report also explores how organizational-driven strategies, like the resource-based view (RBV), differ from environment-driven approaches, such as the positioning approach, and under which circumstances each is most appropriate. It contrasts innovation and optimization, performance and competitive orientations, and the schools and processes of strategy to understand the factors that influence success in the automotive industry. The report concludes that Tesla is in a unique and prosperous position to enter the US auto industry.

International Business STRATEGY EXAM
MAN3090
Janna Pearce
6531652

Case Study Question
“Using whatever approach you think appropriate, identify the key dynamics of the
US auto industry that Tesla will need to consider as it tries to enter into the
market. Critically review the extent to which you think Tesla is in a position to meet
the challenges of the US auto industry.”
Introduction
Tesla's objective, according to Porter, is to position itself successfully within the auto
industry to best protect against external influences, furthermore, Tesla's profitability
in the sector will ultimately be determined by the 5 external forces and PESTLE
factors. This essay determines the key dynamics of the auto industry, while critically
reviewing Tesla’s capabilities to face the challenges of the auto industry in the US.
Industry Rivalry
Competition within the auto industry is high, characterising an oligopolistic US
market. The rivalry between three US manufacturers accounts for 46% of the US
market share by volume. With the additional factor of high barriers of competitors
exiting the market, by a social incentive of protecting the 3 million jobs. Tesla,
however, faces the existing competition by a differentiation focus strategy into the
electric vehicles (EV) market where competition is moderate. By emphasising the
uniqueness of advanced technologies in its EV’s and utilising a penetration strategy
targeting a narrow, high-end market Tesla can profit from the early adopters. Musk
further outlines the long term strategy of “driving down the market” to make the
successive models for the mass market, this shifts to a differentiation strategy.
The industry is also protected by a low threat of new entrants. Challenged by
contending with brand loyalty, high investment into manufacturing capabilities,
developing a supply chain, access to capital requirements and technological
constraints. All of which could cost as much as $6 billion and take up to 6 years.
Threat of Substitutes
The changing face to mobility focus on economic and environmental factors.
Alternative modes of transport, influenced by people moving to cities and climate

change concerns, include car-sharing services, urban bikes, electric scooters.
Investors predict these alternative methods will grow. Tesla’s response to this
challenge is to increase the attractiveness of the auto industry by substituting for the
mass EV market. The auto industry is predicted to be worth $245 billion in 2021 and
stay flat in terms of sales and volume. As a result, the threat of substitutes currently
qualifies as moderate.
Bargaining Power of Buyers
With 113 million registered passenger cars and average vehicle retention of 11.6
years the power of buyers is a high force. The millennial consumer market is a new
threat to buyer power in the auto industry. With significant research and conferring,
millennials are more pragmatic in their decision making. Additionally, the lack of
brand loyalty and low switching costs present a threat to the industry. Tesla however
competes on environmental factors and exclusivity for customers, selling through
company-owned stores and securing pre-ordered sales. Although obstructed by
legal restrictions partial banning of direct sales in several states, illustrates the
destructive power Tesla have over the industry. More sustainably, however, Tesla
can compete in the demanding consumer market by offering post-sale Wi-Fi updates
and improvements as well as exclusive access to 1,300 charging stations and
11,000 superchargers addressing “range anxiety”. Furthermore, the connected car
revenue is expected to be worth $156 car revenues in 2022, therefore Tesla’s
focused position on connected services, autonomous driving and safety understand
the buyers’ needs and positions itself in accordance to earn high profits.
Bargaining Power of Suppliers
The power of suppliers is low but has the potential to be moderate. The supply chain
is complex with three tiers of suppliers, with 11,000 global supplier companies. Tier 1
suppliers have increasing power with diversified technological capabilities outside
the auto industry. Additionally, the auto industry influenced by technology and
software is predicted to capture 11% of profits in 2030. Tesla’s vertically integrated
position is advantageous by manufacturing 80% of components in house Tesla can
capture higher profit margins. Critically, however, Tesla’s AI automated factories are
challenged by standards of quality.

Tesla’s Unique Position
Despite Tesla facing key challenges of buyer power, and intense rivalry, external
variables alone do not adequately describe the company's position. In a slow-change
industry based on optimisation and industry benchmarking. Tesla however has an
internal influence upon the market, spurring innovation and taking a resource-based
view approach on lithium-ion battery cells. Ultimately Tesla has shifted the global
auto industry, reinventing the existing approaches by providing mobility services,
adopting vertical integration and automation. Tesla has a unique position to
challenge the industry dynamics.
Conclusion
Key dynamics in the auto industry include significant forces of buyer power and
intense industry rivalry. Tesla competes on exclusivity power of buyers, reducing the
challenges in the demanding consumer market. Entering the market in a
performance-based approach allows them to compete on innovative features, where
previous auto companies failed to venture. Tesla entering on a differentiation focus
attracting early adopters in a niche luxury EV market is a worthy position to advance
into the mass market and increase market share. Concluding that Tesla is in a
unique and prosperous position upon entry into the US auto industry.

Theory Question
“In what ways are organisation driven approaches to strategy different to
environment driven approaches to strategy? Under what circumstances might
each be appropriate for an organisation to follow? Use theory and examples to
support your answer.”
Introduction
The main point of contention in the internal or external drivers of strategy debate is
whether the organisation can impose on the environment or does the environment is
affect the strategy of the firm. This essay will analyse the key differences between
the positioning approach and the resource-based view (RBV) with a focus on
innovation and optimisation attitudes and competitive and performance orientations.
Relevance to appropriate circumstances will be applied to each approach.
Positioning Approach
From a positioning standpoint, strategy is influenced by external factors. The
strategist must identify these factors through strategic analysis and establish a
position within these conditions where the firm can thrive and gain a competitive
advantage (Porter,1981). Porter popularised the positioning approach with his
concept of the 'Five Forces,' which can be used to assess an industry's external
environment. Furthermore, decisions including positioning on Porter’s generic model
requires an analysis of competing based on cost or differentiation (Johnson, et al.,
2014).
Resource-Based View
However, the RBV asserts that strategy is established internally and that firms have
control over the environment in which they operate. The firm's principal source of
profit is its resources and competencies (Grant, 1991). The RBV core premise is that
to maintain a competitive edge, a company must acquire and control unique,
inimitable, and non-substitutable resources and competencies, as well as the
organisational structure, to absorb and use them (Barney, 1986). Furthermore,
knowledge, uniqueness and personality according to Prahalad and Hamel (1990),
are essential for achieving core competencies. The firm will gain market access,

customers, and emulation as a result of its key capabilities. Personality traits
(intangible aspects) provide a sustainable competitive edge. VRIN is a framework
developed by Barney (1991) to determine whether resources are valuable and
sustainable.
Performance and Competitive Orientation
Both approaches emphasise profit maximisation as a strategic outcome. Although
the process characteristic of the positioning approach favours a performance
orientation, there is a stronger emphasis on a competitive orientation, to outperform
competitors through the use of proactive and innovative methods (Covin & Covin,
1990). Competitive orientation is valuable in global contexts to critically determine
international expansion utilising porters diamond model (Porter, 1990). For example,
Target failed to compete against rival competitors at lower prices in the Canadian
market (Yoder, et al., 2016).
However, the RBV orientates its approach to a performance-based view. A
company's essential business processes must be woven into difficult-to-copy
strategic skills that set it apart from its competitors in the dynamic new world (Stalk,
et al., 1992). Recently dominating management research, according to Hamel
(2008), profitability in the new, technological and globalised era will be determined by
brainpower, creativity, and knowledge categorised by fixation of themself as a firm
(Simons, et al., 2000).
Innovation and Optimisation
Two notions highlight concepts for competing in this globalised ultra-competitive
world. The RBV strategy competes on the ability to supply unique products and
services, through an “innovation” approach. The RBV has been widely applied to
established organisations that have accumulated resources and in industries where
IP establishment is crucial, for example, the pharmaceutical or tech industry. For
example Apples product design, innovations and capabilities have led to competitive
advantage encouraged through strategic resources and superior capabilities (Mallin
& Finkle, 2011). But, observing Grant’s (1991) competency criteria, a transparent
and replicable approach will not retain value in the long term, specifically in a highly
competitive, saturated market.

The positioning approach favours the “optimisation” approach to compete in the
market. Optimisation is the ability to outperform the competition, such as by charging
lower costs or providing higher quality. Applicable in a mass consumer product
market, for example, the car industry is likely to witness fast growth in the use of
optimisation efficiency to race to the ideal position (Jones, 2003).
Schools and Processes of Strategy
Barny (2001) observes many parallels between the RBV and the evolutionary theory.
Routines are an indicator of a company's competencies and resources. In the
context of bottom-up structures and emergent strategies which evolve from highly
skilled labour forces with high autonomy (Mintzberg,1987). Circumstances favour
communication within all functions for innovations to grow in organisations (Prahalad
& Hamel, 1990). Whereas the positioning approach takes a classical approach,
following a prescriptive process of analysis and systematic planning (Ansoff, 1987),
suitable for top-down information processes.
Conclusion
The positioning approach and RBV contrast in terms of strategy processes, strategic
orientation and decision implementation. The RBV favours a performance and
innovation orientation, through emergent, bottom-up processes, favoured by the
dynamic nature of the new world. However, the positioning approach consists of a
competitive, optimisation orientation through a classical, prescriptive process
relevant in large hierarchical organisations and mass markets. It is also valuable in
the global context of international expansion. To achieve an ideal position of
domination of competitors with long term sustainability of internal capabilities a
balance is needed.

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