Determination of External Factors
It is important for the contemporary business organizations to effectively determine the external business factors in order to have sustainability in their business operation. In addition, determination of the external business environment will also help the business organizations in identifying their effectiveness in dealing with challenges. On the other hand, the contemporary business organizations are having the major challenges of dealing with the increased degree of competition in the global market (Timmer et al. 2015). The impact of the external business factors are varied in different business sectors and one of the major affected sectors is the automobile sector. This is due to the reason that automobile sector is facing the threat of new entrants in the market along with frequent change in the technological aspects and preference pattern of the customers. Thus, it is becoming important for the automakers in determining the external trends and initiates their business strategies accordingly (Townsend and Calantone 2014).
Tesla is one of the newest entrants in the global automotive market. They can be considered as a medium sized automaker compared to the established players in the market but their innovative approach is getting them placed distinctively in the market (Tesla.com 2018). In addition, their innovative approach can also be termed as disruptive due to the fact that entry of tesla in the automobile market created a stir in the existing market trend and revolution for the electric mobility started. However, with the rapid and frequent change in the automobile market, it is also becoming challenging for tesla to cope up with the current market trend and maintain their competitiveness.
This report will discuss about the impact of the external business factors on the policies and decision making process of tesla. In addition, the opportunities to be gained by them from the change in the external business factors will also be identified. The impact and influence of disruptive innovation and technology on the policy making of tesla will also be critically evaluated in this report. The response of them towards the disruptive innovation will be determined along with their effectiveness. In accordance to the identified factors, this report will also discuss a few recommended steps for the further improvement for Tesla.
Political factors
Political factor is having a huge importance for tesla due to the reason that stability in the business environment will determine the effectiveness of them in their long term business operation. As of now, tesla is having their major operation in the United States and Canada with both the countries is politically stable and low level of risk. The political stability in their major markets is helping them to initiate their business process without having the risk for coup and instable policies (Aisen and Veiga 2013). In addition, the pro business and capitalist approach of the government of the United States and Canada is further helping tesla in having favorable business environment. Thus, it can be concluded that stable political environment is important for the business operation of tesla and in their future foreign operation they should select the host country based on their political stability.
Political Factors
Economical factors
Economical factors are also important in the business operation of tesla due to the reason that it will determine the profitability and revenue. According to Sierzchula et al., (2014), one of the major economical factors that determine the business operation and effectiveness of tesla is financial incentive provided by the governments. This is provided mainly due to enhance the use of electric vehicles to curb pollution. As per the authors, this is important because level of providence of financial incentive will determine the sales figure of tesla. On the other hand, Prillaman and Meier (2014) identified tax rate as another major economic factors for the business organizations. This is due to the reason that tax rate will determine the cost of operation and will eventually increase the price of the products. As per the authors, it is important for Tesla due to the reason that the final cost of the cars of the will be influenced by it and this will determine the potentiality in the market. However, on the other hand it should also be noted that economic development and growth will help tesla in having more potentiality due to the reason that customers will have more purchasing power to avail their products.
Social factors
Social factors are another major influencing and determining factor for the business operation of tesla. This refers to the social trends and how customers are responding to the product strategy of the business organizations. According to Barth, Jugert and Fritsche (2016) social factors are important for tesla due to the fact that it will determine the customer interests towards the certain products. In the case of tesla, if the social trend is not towards having an electric car then tesla will not find any opportunity in the market and vice versa. In this article, the authors have given the example of the German market where the positive social trend towards the acceptance of the electric vehicles is helping in having more sales. On the other hand, it is stated by Donada (2013) that alignment of the social requirements and trends with the offerings are also important for the business organization to get the success. In the case of tesla, if the product features can meet the demand and expectations of the customers, then it will be more likely that they will find more potentiality.
Technological factors
Technological factors are important for tesla due to the reason that their competencies are based on innovation and technological development. As per Akamatsu, Green and Bengler (2013), tesla will find it easy to gain market share in the global market only if they can posses more technological advancements. Hence, it is important for tesla to determine the current technological standards in the market and accordingly they should initiate their strategies. On the other hand, it is also being stated by the authors that technological factors will also determine the efficiency of tesla in terms of their production and operation process. The more effective and favorable will be their technological factors, the more will be the business effectiveness of tesla in doing business in the highly competitive automotive market.
Economical Factors
Bargaining power of the buyers
Bargaining power of the buyers refers to the extent to which the buyers in the market enjoy the upper hand in dealing with the companies. According to Porter and Heppelmann (2014), bargaining power of the buyers for tesla is moderate due to the reason that there are number of options available to the customers such as other modes of travel. Thus, customers can change their preferences at any point of time. On the other hand, it is also stated by the authors that the technological advancements and other updated features being offered by tesla are distinctive in their way and pose the customers a fewer options to switch. It is important for tesla due to the reason that they have to enhance the competitive advantages of their products based on the level of bargaining power of the buyers.
Bargaining power of the suppliers
Bargaining power of the suppliers refers to degree to which the suppliers influence the pricing of the organizations. According to Van Alstyne, Parker and Choudary (2016), tesla is having low degree of bargaining power of the suppliers. This is due to the reason that tesla is having effective process of backward and forward integration, which is limiting their dependency on the external suppliers. As per the authors, determination of the bargaining power of the suppliers is important because they will be able to determine the cost of the supply chain and can initiate the newer strategies accordingly. In addition, this will also help tesla in identifying the gap between their supply chains to that of the industrial standards.
Threat of the substitutes
Threat of substitute refers to the extent to which tesla is facing the challenge of having substitute products in the market. According to Suwardy and Ratnatunga (2014), tesla is having moderate threat of substitutes due to the reason that very less number of electric vehicles is available in the market. In addition, the features of the cars of tesla are also distinctive and it further reducing the impact of substitutes. On the other hand, it is also stated by the authors that introduction of more upgraded products in the market is posing challenges for tesla.
Threat of new entrants
Threat of new entrants refers to the extent to which the entry of the new entrants poses challenge to tesla. According to Schwenger, Straub and Borzillo (2014), determination of the threat of new entrants is important for tesla due to the reason that tesla will build their resources and competencies accordingly. It is also stated by the authors that tesla is having lower threat of new entrants due to the reason that huge investment is required for the new entrants to entry in this industry along with having the need for different other expertise. Thus, tesla is having the less extent of threat of new entrants. However, it is also recommended that the competencies of tesla should be enhanced further in order to reduce the future probability of threat from the new entrants.
Social Factors
Technological disruption and disruptive innovation
Technological disruption gets emerge when the development of the particular technology gets stagnant and there is a need for the radical change in the existing technological approach for gaining sustainability. In this case, disruptive innovation is being initiated and disrupts the existing trend and business pattern of the industry (Osiyevskyy and Dewald 2015). Companies initiating the disruptive innovation will have the maximum return from the market due to the reason that they will get the entire untapped market. Initiation of disruptive innovation helps the business organizations to open up new market segment. Thus, it is important for the existing business organizations to be competent enough in dealing with the disruptive innovation.
Relevance of disruptive innovation for tesla
The concept of the disruptive innovation is quite important and relevant for tesla. This is due to the reason that tesla itself can be considered as a disruptor in the automobile industry with the introduction of their electric vehicles and changing the future trend of the entire industry. In addition, it is stated by Hardman, Steinberger-Wilckens and van der Horst (2013) that having the status of technology disruptor will not help tesla in the long term. This is due to the fact that more upgraded technologies are getting emerged in the market. In this article, the authors discussed about the hydrogen fuel cell vehicles. It should be noted that tesla is known for their electric car and hydrogen fuel cell vehicles are more upgraded than that. However, tesla is not having expertise in developing hydrogen fuel cell based vehicles. Thus, the competitiveness of Tesla by being the technological disrupter will not last long if they cannot develop their competencies further.
On the other hand, it is stated by Pinkse, Bohnsack and Kolk (2014) that disruptive innovation and technology is relevant to tesla due to the reason that revolution and popularity for the electric vehicles are being made possible only after the introduction of tesla cars. It is reported that prior to the introduction of the electric cars by tesla, there are number of electric cars were available in the market but were not successful enough and it was considered as financially unviable. However, the introduction of the electric vehicles by tesla changed the existing scenario and gained instant popularity in the market by offering only electric vehicles.
Influence of technological disruption on internal policies
One of the major impacts of the disruptive innovation and technology on the policies of tesla is their inclination towards more innovative approach. It is stated by Mazzucato et al., (2015) that innovative business policies and organizational culture are being maintained by tesla in their internal management. This is due to the reason that tesla was born out of technology disruption and not out of requirement. Hence, tesla is known for their innovation and advanced technology in the market. This is also the major reason for tesla to have their innovative approach. This is also helping tesla in initiating and introducing more innovative features in the market over their competitors. On the other hand, it is stated by Rimmer (2018) that tesla also maintains their innovation as their intellectual property. This is due to the reason that technology disruption and disruptive innovation will cause reduction in the business potentiality for tesla. Thus, it is important for them to protect their innovative elements as their intellectual property to have the long term competitiveness.
Technological Factors
However, on the other hand, it is stated by Teece, Peteraf and Leih (2016) that the phenomenon of disruptive innovation is causing the policies of tesla, oriented more towards the technological advancement. This is due to the reason that technology is the major source of gaining competitive advantages for tesla and thus the decision making process of them is also oriented towards the development of the technology only. It is also stated by the authors that in case of the funding process, major portion are invested for the technological development over the other business factors. Thus, due to the influence of the disruptive innovation, the decision making process of tesla is having more narrow approach. However, it is also identified by the authors that this approach of tesla may also have negative impact. This is due to the reason that orientation towards a single business element will reduce the organizational agility of tesla in the long term. Thus, the associated risk and uncertainty will further get increased with time.
Thus, it can be concluded that the concept of disruptive innovation is relevant to the business operation of tesla. In addition, the decision making process and policies of them are also heavily influenced by it.
Introduction of premium products
In against the business situation and external business factors being faced by tesla identified in the above, the response of them is varied and diverse in nature. In this section, these responses and strategies initiated by them will be identified and critically evaluated. One of the major responses for tesla was from the perspective of the choice of the products. This is due to the reason that the approach being taken by tesla is different to that of other traditional and established carmakers. According to Stringham, Miller and Clark (2015), prior to the introduction of the electric vehicles by tesla, some other automakers such as Volkswagen and General Motors came up with electric cars, which are inferior in terms of performance and utility. Thus the market was not getting attracted towards these cars. As per the authors, this situation provided tesla with the opportunity for technology disruption and they came up with more performance oriented electric cars. These cars are more productive and their performance is at par to the conventional gasoline vehicles.
According to Moritz et al. (2015), the business strategy initiated of tesla can be termed as effective due to their distinctiveness. Introduction of the high performance electric vehicles helped tesla to create an entirely new market segment without any competition. Thus, they have also gained the advantages of first mover in the market. The authors have also stated that the strategy of introducing premium and high performance vehicles also aligned with the fact that electric vehicles cannot be provided in competitive prices as of now. Thus, introduction of the premium products and charging premium for that helped tesla to cover the developmental cost without reducing the profitability.
Developing infrastructure
Another response came from the side of tesla in dealing with the concept of disruptive technology is developing the infrastructure for the electric mobility. This is also being done by tesla in order to fend off the impact of disruptive innovation in their long term business operation. According to Hardman, Shiu and Steinberger-Wilkens (2015), apart from the introduction of the high performing fuel vehicles, tesla also developed charging stations and charger plants. This is being done by them due to the reason that disruptive technology cannot be initiated in wide areas at once. In addition, it is also stated by the authors that one of the major reason for the electric vehicles for not gaining popularity is lack of charging infrastructure. In accordance to this situation, tesla initiated their innovative approach by introducing fast charging stations for the electric vehicles and massive charging battery plant. This helped them to have the greater competency due to the reason that newer disruptive technologies will not be able to disrupt the entire ecosystem of the electric mobility. Thus, according to the authors, this response of tesla can also be regarded as effective.
Backward integration
Effective process of supply chain process and less dependency on the external suppliers can also help in maintaining the sustainability of the competitive advantages. In this case, tesla responded by having their own backward integration in the supply chain process. According to Martin (2014), tesla is one of the leading players in the battery industry. Thus, the major component of the electric vehicles is being produced by tesla in house. This is enabling them in reducing the involvement of the external suppliers. Thus, the competitive advantages of tesla are not getting publicized. According to Chen and Perez (2018), tesla is also maintaining the forward integration by own. This entire process of supply chain is being controlled by tesla and this enabled them in create a separate ecosystem for their electric mobility solutions. Future emergence of more disruptive technologies will have less impact on this entire ecosystem and tesla will have the time to evolve in dealing with the technological disruptions in the market.
Initiation of radical approaches
One of the major factors to be followed in initiating the disruptive innovation is having radical approaches compared to the existing market trend and preference pattern. According to Rajashekara (2013), tesla introduced fully electric vehicles in the market when the existing players are initiating defensive strategies by introducing hybrid vehicles instead. Thus, it can be termed as a radical approach by tesla. In addition, the radical approach initiated by them also helped tesla in having more coming of the age technologies. Hence, it can be concluded that the technologies initiated by tesla are well ahead of its time and it is ensuring that they are immune against the emergence of newer disruptive technologies. On the other hand, it is stated by Reinecke (2014) that radical approaches of tesla are not limited to the introduction of the electric vehicles but also in terms of the newer technologies being offered with it. This is due to the fact that each one of the tesla cars is having different technologies such as autopilot. This is helping tesla in having further disruption in the existing market trend of automobile. As per the authors, majority of the technologies given are futuristic and are ahead of their time. Thus, the emergence of the newer innovation and technologies will have lower level of disruptions in the business operation of tesla.
Market growth strategies
One of the major areas for improvement identified for tesla in their business operation is narrow target segments. According to Martins, Rindova and Greenbaum (2015), the more will be the target audiences, the more will be the effectiveness and efficiency of the disruptive innovation in the industry. This is due to the reason that introduced innovation will disrupt the existing market trend only when it will be implemented on a large scale in the market. However, in the case of Tesla, the innovation for them is limited in terms of geographical areas as well as target audiences. The authors have also identified that the ultra premium offerings by tesla is causing the stir only in the niche higher segment market of the automobile industry. However, this segment is low volume segment compared to the mass market segments. On the other hand, this limitation is also causing no impact on the entire global automobile industry.
As per Djordjevic (2014), limited geographical presence is also restricting the effectiveness of the disruptive innovation of tesla. This is due to the fact that tesla is having their major presence only in the United States and Canada and started gaining momentum in the Chinese market. Thus, the innovation by them is not putting challenge to the global automakers and also not creating the disruption that should have been in place. According to the authors, this is quite evident in the current scenario of the global automobile market where the electric vehicles have not gaining popularity in huge and posing challenges to the conventional vehicles.
It is recommended that tesla should initiate growth strategies in terms of both market presences as well as target audiences. Enhancing the geographical presence will help them to have more target audiences across the world. This will further enable them to pose challenge to their competitors in larger scale and technology disruption will also be in full scale. On the other hand, it is also recommended that growth strategy should also be initiated in terms of product portfolio. This is also important due to the reason that having diversified product portfolio will only help in catering to different segments around the world. In this case, introducing more mass friendly and affordable electric cars will help tesla to target the larger customer segments pose the challenge to the mainstream automakers. In addition, this will also help to stir up the major portion of the global auto markets and initiate the electrification of the transportation.
Forward integration
It is also being identified that the inclusive supply chain strategy of tesla may also have negative impacts on their business. This is due to the reason that it will reduce the visibility and distribution network of tesla. According to Arya and Mittendorf (2013), outsourcing the forward integration will help tesla to have better visibility in the market and will have larger market penetration. In addition, it is also being stated that tesla is incurring an added cost in maintaining the forward and backward integration by own. This can be further mitigated by means of outsourcing the forward integration and made their products available to more places. From the above analysis of the response by tesla, it is identified that low product visibility is one of the major areas of improvement in their business. Thus, according to the authors, outsourcing and enhancing the forward integration will help in overcoming this gap and tesla cars can be made available to the larger customer segments. On the other hand, outsourcing the forward integration process will enable tesla in their global business plan. They will have low responsibility in managing their operations in the global market.
Conclusion
This report concludes that tesla is one of the major technological disruptors in the automobile market and changing the existing trend and pattern of the industry. In this report, the external business environmental factors being faced by tesla are discussed and it is identified that there are number of positive as well as negative impacts are evident in their business operation. Competitiveness of the industry is also further increasing with the entry of new entrants and this is posing threat to the business potentiality and profitability of tesla. In this report, it is also identified that tesla can be considered as a technology disruptor but to a certain extent. This is due to the fact that market presence of tesla is limited and caters to a niche target segment. This report recommends that tesla should be more focused towards enhancing their product diversity and market presence. If these areas can be improved, then only they will be able to initiate the disruptive innovation in the market and challenge the major competitors in the market. In addition, this report also recommends that tesla should outsource their forward integration process to have better market awareness and penetration in the global scenario.
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