International Business Plan for Tesla Entering Mexico
Tesla deals with electric vehicles, battery products, and electric power trains. The idea behind the 2003 launch of this company was to prove that electric cars are better than those, which run on gasoline. The idea of the cars was to have instant torque and increased power while also maintaining zero emissions into the environment as opposed to carbon-laden emissions of the gasoline cars. The first car was the Tesla Roadster, which was launched in 2008 and could accelerate from 0 to 60 mph in only 3.7 seconds while also gaining a 245-mile range with only one charge of the installed lithium-ion battery. Subsequently, 2,400 units of the Roadster were sold and are operational in over 30 countries around the world (Tesla, 2015).
The launch of Model S followed in 2012 as the first premium electric sedan in the world. It is 100 percent electric, has four doors, enough room for seven occupants, and 64 cubic feet of storage. It is christened the ultimate family sedan with the acceleration of a sports car. Tesla currently has over 50,000 of its cars on the road, and the new car, Model X is soon to hit the mass-market production line. As explained by Tesla, the beauty of these cars is that the buyers can charge their cars at home and forget about visiting a gas station or the price of gasoline. Long distance travels require Tesla’s Superchargers which fast-charge in only 20 minutes can be found in traditional routes in the US and Canada, Europe and Asia Pacific. The production of Tesla cars is done at the company’s plant in Fremont, California, which has the ability to produce 1,000 cars every week (Tesla, 2015).
A distinctive feature is that the products are of a luxurious class. Also, the car deviates from the traditional source of energy, which is petrol. The cars will pack most features, and more, enjoyed by other luxury cars. However, the cars will be friendlier to the environment. In the case of branding, there lies a distinctive challenge of standing out from other models that are not environmental friendly. Thus, extensive marketing will be required to ensure that the public can readily identify the models. To stand out, the firm will utilize the same recognizable models that are available in the United States. Taking a devolved approach, in establishing local brands, may end up using up significant resources in advertising. Moreover, it is easier to sell an icon, as opposed to creating a new product.
Tesla will use exporting as the market entry strategy for Mexico. For one, the approach serves to reduce production cost. To ensure maximum diffusion, the firm will avail dealerships to interested businesses and individuals. Additionally, the proximity to the source and destination serves a great advantage to the firm. However, Tesla may miss some crucial benefits of local production. The government may choose to raise taxes on exports, in comparison to local goods. However, the Mexican government has sought to invest in the energy sector and combat global warming. Tesla’s products offer both aspects to the masses.
At the same time, one of the primary competitive tools in Mexico’s manufacturing industry is pricing which can help Tesla develop and sustain a firm position in the market. Not only that but also developing a strong relationship with the authorities can ensure that Tesla is in a position to lobby for a particular Act to be adopted which would give it a competitive edge yet weakening the position of its rivals. Additionally, it would be wise for Tesla to create an atmosphere of cooperation with some of its rivals, and compete with only a few remaining ones (Zineldin, 2007).
Rosenbloom (2012) points out the need for both a physical attachment and online presence for a given business. Albeit the fact that traditional marketing has been effective, the world has faced a metamorphosis (Rosenbloom, 2012). In the case of Tesla, personal selling an online presence will serve as the primary distribution channels. The need for personal selling is driven by the fact that the firm engages in the selling of luxury brands. As such, the company can target certain individuals in the quest for potential markets. In the case of an online presence, it will serve to announce the entry of the brand into the market. Additionally, widespread sensitization helps to spearhead Tesla as a global icon. Furthermore, in an era of widespread globalization, Tesla can initiate campaigns highlighting their efforts in combating the scourge. The aspects can then be spread online via Facebook, Twitter, and Instagram. Tesla can also employ the services of online ‘celebrities’.
Tesla will utilize a marginal costing approach. In this case, a firm sets their price based on the cost of producing an additional unit. The method is employed in periods of poor sales. Being a new entrant, Tesla’s sales are expected to rise over time. Currently, Tesla can be categorized as facing a period of poor sales. The move is necessitated by the market expectations and the respective government response. A government’s raise in taxes or inclusion of subsidies will have a direct effect on the marginal cost. Thus, the price will vary based on the above changes. Overall, the approach will allow profit maximization while maintaining Tesla’s aim for saving the environment without foregoing luxury.
Managing Human Resources
An expected challenge lies in the co-integration of human resources. For one, Tesla boasts of worker’s from varying backgrounds. The cultural differences may cause unforeseen friction. To ensure a smooth transition, the firm will need to move with some of its staff from America. Conducive human resources will be necessary to ensure a smooth transition and interaction devoid of friction at the workplace.
Mexico’s Business Environment: An Analysis
In the ‘ease of doing business’ ranking of June 2015 by the World Bank, Mexico lies in position 38 out of 189 economies around the world. This means that the regulatory environment is favorable for local startups to set up and operate. The country is also favorably placed in position 5 for getting of credit ranking and position 65 in the starting a business ranking. The other rankings out of 189 economies include getting electricity (72), registering property (106), dealing with construction permits (67), protecting minority investors (57), paying taxes (92), trading across borders (59), enforcing contracts (41), and resolving insolvency (28) (World Bank Group, 2015). These rankings are important because they give an indication of what a foreign investor like Tesla Motor company should expect not only at the application of registration and registration of its business but also during operations in Mexico in the subsequent periods.
Elsewhere, a report by Ernst & Young (2015) explains that the Mexican government has been taking decisive measures to attract foreign investment that will give it a sustained economic growth in the long term. For example, in the past couple of years, the government has initiated some structural reforms that affect sectors, which deal with education, energy, labor, finance, and politics with an aim of developing a conducive environment in the country to attract foreign investment and build economic growth. The report further explains that besides the structural reforms, Mexico is also attracting foreign investment through free trade treaties that it has signed with about 43 countries. The country seeks to keep the interest of foreign investors so that they can continue with their operations in Mexico. The move is is aimed at fostering Foreign Direct Investment (FDI) in the generation of employment, raising of capital for businesses, driving competition in the Mexican market, boosting exports, encouraging conveyance of new technologies, and enhancing personal savings (EY, 2015).
However, Mexico’s Foreign Investment Act provides regulations for foreign investments by outlining restrictions of what foreign companies can engage in during their operations in the country. This law also shows foreign investors the constitutional restrictions that they are subjected to. To attract foreign firms like Tesla, Mexico has situated itself as a central manufacturing center that supplies the North American market. Because of this, international automotive and aerospace industry investors have taken an interest in the country. Tentatively, they are set to spend significant stakes as part of the FDI in the Mexican market. There are also incentive programs and investment support initiatives that are being implemented by Mexico’s state governments which are aimed at domestic and foreign investors in a bid by the state governments to benefit from the ongoing growth (EY, 2015).
The Mexican government has also placed great emphasis on reducing inflation, which has enabled the country to be compared to some of the top economies around the world. At the same time, interest rates within the country have remained stable, which gives foreign investments a guarantee of becoming successful. It cannot also escape notice that Mexico shares a border with one of the biggest export markets, which is the United States, yet Mexico has a moderately costing young and skilled labor force. Also, government policies have been deliberately designed to encourage exports, which mean that Tesla will still be operating near its target market, at lower costs, and within a mostly enabling environment. One of the other advantages that a company like Tesla has in this market is the fact that foreign investments are the dominant forces in the manufacturing industry as both wholesale and retail operations, meaning that Tesla’s move to the Mexican market only looks to complement the other foreign industry players who are already there doing construction and hospitality.
The framework of the manufacturing sector is in such a way that some local small businesses are run as non-integrated divisions even though a sizeable number of the bigger corporations are systematized as family-owned institutions. Some the large corporations have also sought listing on the Mexican Stock Exchange. Furthermore, the government is consistently putting in major investments in basic utilities, the electrical grid, and petroleum and petrochemical sectors. Most of these investments are within the industries that are most needed for a manufacturing sector to thrive, for instance, the electrical grid. However, to ensure that these key industries are productive and efficient in their operations, there have also been some reforms, which have ensured that foreign investors can also render investments to these sectors to avoid government monopoly and potential degradation of services because of complacency. One thing to note about Mexican government policy is that it has always been focused on improving the basic livelihoods of the Mexican people. With the ongoing reforms on foreign investments and a plethora of other sectors in the country, the main strategy is to modernize these industries to enable efficiency in the delivery of services to both local and foreign businesses (PwC, 2015).
To emphasize Mexico as an investment destination, there is also great emphasis on the development of a proper infrastructural network. A bulk of the manufacturing industry products are transported by rail to various destinations in and out of Mexico. The advanced railway system joins directly with that of the United States and is a great convenience to the transportation of goods which would otherwise take a longer time to reach their destinations while also costing more (Zozaya, 2014). The road network is continually being improved in and out of the cities with a grid of major highways that run the span of states and towns and other smaller roads connecting the rural areas of Mexico. Most of the roads are paved with only a few that run into rural areas still dirt roads. This highway network is estimated to connect over 25,000 locations around Mexico and links 39 ferry routes, which also lead to ease of transportation of human resource from one point to another (Geo-Mexico, 2015). Depending on where Tesla would like to set up shop, the company will find that it is served by multiple transportation options, which are becoming as time passes and constant upgrading is done as Mexico realizes that it is increasingly attracting the eyes of foreign investors (ProMexico, 2015)..
As a manufacturer of cars, Tesla could enjoy Mexico’s manufacturing industry and more so the automotive industry as a much cheaper option to its manufacturing efforts and innovative technologies especially with the level of expertise that Mexico has in automobile assembly. This is because the leading manufacturing industries in the country include the automobile and auto parts industries, including steel manufacturing and the construction sector among others. Due to increasing competition from foreign investors, Mexican companies are also improving their products and control quality to gain increased exports. Nevertheless, the reason for this increased competition is that Mexico has reduced its import duties and done away with the requirement for early import permits for some goods that currently found within the Mexican open economy setting. Additionally, it is important to note that the free-trade agreement that Mexico has signed spans countries in North America, within the European Union, some South American countries as well as Japan. The result is that there has been a significant reduction in both tariff and non-tariff barriers earlier experienced between Mexico and these regions (PwC, 2015).
Another factor that might affect the business environment for Tesla in Mexico is that of the population. According to the 2015 estimates by National Population Council, Mexico has a population of almost 122 million. An approximate 35.4 percent of this number is said to be between the ages of 10 and 29. At the same time, an estimated 78.1 percent of Mexico’s population lives in the urban areas. The significance of this is that a large number of the country’s population is of an employable age and can deal with the rigors of the manufacturing industry. On the other hand, the high percentage of urban residency also puts Tesla in a proper position of finding readily available local human resource for its operations assuming that it will set up its subsidiary in an urban setting (Geo-Mexico, 2015).
Nevertheless, a business environment is not just about the age or ability of the human resource but about its culture as well. Mexico boasts of a vibrant culture with a largely Spanish-speaking population, estimated at 92.7 percent of the people. The other languages spoken in some regions are indigenous including Mayan, Nahuatl, and others. Perhaps Tesla’s American employees may not find it so difficult to communicate with the Mexicans because Spanish is one of the languages emphasized in American schools while Mexicans make up a significant part of the American population. At the same time, due to the large Mexican population in the United States, Americans are more exposed to Mexican culture than not. Additionally, the fact that Mexicans are highly religious, with an estimated 82 percent identifying themselves as Catholics, and that they strongly adhere to the hierarchy in business cannot be lost on any foreign investor who moves his operations to Mexico. Some elements in the Mexican culture have to be considered if Tesla is to gain the respect and consideration of the locals. The outfit, if it is Mexican, has to gain the respect it deserves from its target local market in Mexico and its local employees (Zimmermann, 2015).
Mexico is the seventh largest vehicle manufacturer globally. At the same time, the automotive sector is continually receiving new investments from both local and foreign entities and is expected to move to the fifth position globally by the year 2020 with the annual production of five million vehicles. This sector employs above 66,000 people with a representation of about 3 percent of the country’s gross domestic product (GDP) and producing at least 32 percent of all of Mexico’s exports. Tesla is getting into a market that is already experiencing growth and is well on its way to becoming a possible world leader in car manufacturing.
To begin with, Tesla is set to face competition from Hitachi Automotive Systems, the Japanese firm, which rolled out an investment of about 85 million dollars in Lerma Municipality of Mexico. This investment is part of the cost of putting up of a plant as well as the operation costs that are incurred in the initial stages of the production of aluminum pistons that are supplied to automotive assemblers such as General Motors, Ford, Honda, Fiat, among others. Hitachi’s plant is said to have generated about 300 jobs and has attracted professionals in the fields of mechanical, industrial, and electromechanical engineering. The company’s products are said to be a source of growth for the country’s automotive industry and a line of new exports.
In the meantime, Jaguar, which is a subsidiary of Tata Motors from India, is also setting up in Mexico to get a slice of the huge Mexican automotive industry. It is following the footsteps of big car manufacturing companies like Mercedes-Benz, BMW, and Audi. Ford Motor Company sold Jaguar and Land Rover to Tata Motors in 2008 in a 2.8 billion dollar transaction, and the move to Mexico is a way of Tata Motors expanding its market share in the American region through the popular Jaguar. The company has explored the possibility of putting up a production plant in Mexico since 2012 to produce low-price car models, which can be sold to the Latin American market, despite Jaguar being associated with its luxury, and pricey models, which have been in the market since the 1930s. To make a penetration into the market, Tata Motors is leveraging on the Jaguar name and brand that has seen much profitability in Europe to try to make headway into the Mexican, and indeed the Latin American market. Tesla as a competitor should be well aware that Jaguar and Land Rover are very popular brands in the worldwide market and sold over 430,000 units in 2014 alone (ProMexico, 2015).
Since 2012, when the first foreign automotive investor, Volkswagen entered the Mexican market, Tesla’s competition has steadily streamed into this market after noting the potential that Mexico had and the strategic positioning of the country at the heart of North and South America. Volkswagen has a 1.3 billion dollar plant in San Jose Chiapa, Puebla for the production of the Q5Audi car models beginning 2016. Following this was the 1.36 billion dollar investment by Mercedes-Benz for putting up a production plant in Aguascalientes-Infiniti to manufacture the company’s signature cars that are exported around the world, but primarily to target the large market of the Americas. In the meantime, BMW followed suit with a one billion dollar investment for setting up a production plant in San Luis Potosi just as the other competing brands had done.
The announcement of Audi’s entry into the Mexican market also triggered Ford into action. It revealed soon after that it would increase production at its plant in Hermosillo, Sonora. An expansion investment of about 1.3 billion dollars would be used to increase production of the company’s car brand Fusion sedan and the more luxurious Lincoln MKZ. Now, Tesla Motor Company wants to enter the Mexican market with its unique electric vehicles, which could give it a slight edge and advantage over the other car manufacturing companies. Further market research would work well to reveal how the Mexican market will receive electric vehicles. However, the production plant that Tesla sets up in Mexico will do well to serve the North and South American markets with Tesla set to experience reduced labor charges, have skilled manpower and utilize advanced technologies which have been occasioned by the arrival of all the above mentioned world-class car production companies (ProMexico, 2015).
Following this, perhaps it is to an advantage that Tesla is joining the Mexican market, after all, the automotive giants have set up shop in the country. This is the case because it means that all the necessary infrastructure that would be conducive to manufacturing have been put in place, and the right technologies are being assembled from different parts of the world to aid an international car manufacturing and assembly hub. At the same time, Tesla’s competition from these other giant car manufacturing companies ensures that Tesla can measure its production capacity against the very best in the market, and that allows it the chance to improve on its designs and production techniques to a point of great efficiency and effectiveness. With Mexico fast expanding as a manufacturing hub, and with the earlier stated projection that it could become the fifth largest automotive production country in the world, it would only do well for an innovative company like Tesla to move to where the giants are to be part of the action.
As mentioned before, Mexico is manufacturing industry in attracting various technologies that the excellent production companies are finding useful for the production processes. However, it is only because these car-manufacturing companies are trouping to Mexico that these technologies are also finding their way there. New manufacturing techniques and innovative systems are being used to manufacture auto parts and car assemblies; hence, there is a need for all the major car manufacturing companies to adopt these technologies, which promise them better efficiency but at a lower cost with maximizing production. Tesla is probably also following these technologies which though some could be under trial, are still used to test the new production techniques which serve to lower costs of production while also increasing the production of different automotive parts and car assemblies. Tesla’s competition from other car giants like Mercedes Benz will seem because they possibly target a different class of clients, but the idea is that they all want to appeal to a class of drivers who will enjoy their cars and stay with them as long-term clients (ProMexico, 2015).
The competition that Tesla is set to face, as mentioned earlier is healthy, but it will also test the capacity that the company has and how far it is willing to compete to put its footprint in the Mexican market. So far, Tesla has proved to be a resilient motor company with its charismatic leader who has defined what the company stands for, its vision and the way to the future. However, the other car manufacturing companies like Mercedes Benz, Ford, and even Tata Motors have stayed in the market for long because they too have a vision that has enabled them to appeal to their target clients. Therefore, what might set Tesla apart from these other giant competitors is the company’s initial approach and how better they will market the idea of yet another new car manufacturing company in the Mexican market. The idea of electric cars is one that is picking up gradually in different areas around the world, and Tesla could leverage on that fact to put more pressure on its competition. What the company and its visionaries do, it is not lost on them that the Mexican market is huge but also has much competitive edge from other old manufacturers (ProMexico, 2015)..
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