International Business
MBA 522
Section N71
Tesla Entering in China
Submitted By: Gaurav Jethani 655789691
Prof. Esam Mustafa
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Contents
Introduction: ........................................................................................................................................... 3
Strategies: ........................................................................................................................................... 3
Franchising:......................................................................................................................................... 3
Joint Venture:...................................................................................................................................... 4
Entry Mode Selection:............................................................................................................................. 6
Personal Reflection: ................................................................................................................................ 6
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Introduction:
The car industry in China has declined over the past few years but there is continuously rise
in the demand of electric cars which is a good indication for Tesla to expand its business in
China and Tesla can grab this opportunity as they are the leaders in the electric car markets
(Huang, E,2018). There are many strategies available for any business to expand their
business at an International level. But considering the Tesla situation Franchising and Joint
Venture would be the ideal strategies to expand its business in China.
Strategies:
Franchising:
Franchising refers giving an exclusive right by the parent organization to an individual so that
the individual uses its business model (Business Jargons, 2019). The franchisee pays certain
amount of capital to franchisor so that franchisee gets access to its resources to start its
operations in another country (Business Jargons, 2019). Considering the demand of electric
cars consumptions in China is increasing which is a positive indication for Tesla (Bloomberg
,2018). In order to start the Franchising business Tesla, need to consider Labour factor,
Location, Product of Demand, Operation of Scale, Raw Materials Required, Transportation
and Cultural. To start Franchising Tesla will consider the Product of Demand, Location,
Labour factor, and Cultural.
To enter into the Asian market as Tesla was unfamiliar whether the consumers will prefer a
local brand or international brand as most of the Chinese consumers prefer a local product
than international products (Chaoyi Lyu,2018). In order to expand the Tesla operations, they
need to determine the location which will be a vital factor. They need a franchisee who have
a good knowledge about the Chinese market and who can invest and expand its business who
is having an adequate capital and can get loan which will help to expand Tesla operations. As
every business takes a loan from financial institution when they want to expand its business.
In order to start a franchising set-up Tesla needs to have a good location so that all the
necessary production materials can be easily available. The production cost will be less as
compared to North America which will help Tesla to sell their final product at reduced price
in order to increase the market share in Chinese market. As the demand for electric
consumption of electric cars is towards an increasing trend (Bloomberg ,2018) and one of the
obstacle Tesla is going to face in China is that the consumers are preferring a domestic
product over the international brand (Chaoyi Lyu, M. K,2018) and to change the consumers
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preference will be a challenging. As Chinese market is already dominated by BYD. The
competition will be very intense for Tesla in China to capture the market share in China as
BYD is already a dominant force in electric cars in China. If Tesla starts its operation in
Shanghai it will be beneficial for Tesla as they will be able to get all the resources as
Shanghai is the global financial hub.
It indicates that the demand for electric cars is increasing in China is increasing (Bloomberg
,2018) which is a positive indication for Tesla which will help the Tesla to grow. Through
exporting Tesla can increase its sales by providing better prices in comparison to BYD as the
cost of production in China is low by providing better prices to the consumers in comparison
to its competitor and maintaining the quality of Tesla product. Tesla need to understand the
culture of China as it is very important for any business which will help to grow, and it is
most sensitive part for any business. As a part of foundation Tesla management needs to be
culturally sensitive (Serrano, Paul, & Dikova, 2018). Tesla also needs to incorporate the
Chinese culture when they are setting up a business in China (Vision Times,2018). Chinese
people prefer to live in a harmony without the violations of laws and under no circumstances
government of China would allow to continue its operations in China if they violate their
rituals (Vision Times,2018). In China the time-line of project may be extended as any
business in China they want to have a strong relationship with the clients which Tesla will
have to get it familiar (Vision Times,2018). Due to the language barrier if Tesla can give
franchisee rights who knows an English and Chinese very well which will help Tesla to grow
which will help them to grow and can achieve success in China (Today Translation,2019).
Joint Venture:
A joint venture is an arrangement between two or more parties when they form an agreement
together in order to achieve a specific task (Legal Dictionary,2019). In order to start a Joint
Venture business in China Tesla need to consider the Labour Factor, Product of Demand,
Scale of operation and Cultural which are the important factors and tesla will be considering
all these factors (Nguyen & Meyer,2004).
Tesla should enter into Chinese market through Joint Venture. As the demand of Electric
vehicles consumption is increasing in China (Bloomberg ,2018) and the cost of labour is
comparatively less which is a positive indication which will help Tesla to sell at a reduced
price at initial in order to capture the market share. As the labour cost in China is less in
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comparison to USA which will help Tesla to save a huge amount of capital (Nation Master
,2019) and it will be a good opportunity for Tesla to start its operations in China. In China the
labour force is also very high in comparison to United States which makes China a better
option to start its operations in China due to high labour force and due to comparatively
reduced wage rate in China in comparison to United States wage rate (Nation Master,2019).
Tesla should do a Joint Venture with SAIC Motor which will help the Tesla to establish its
business in China. Once a setup is completed with SAIC Motor it will help the Tesla to
become a market force in China with the help of SAIC Motor which is an organization in
Chinese market. Through Tesla Joint Venture with them SAIC motor will also get benefited
as they will get latest technology resources in electric car for which the Tesla is recognized
world-wide (Angus Whitley,2019).
Specially in Joint Venture when SAIC Motor is unable to control the operations activities due
to challenges in market, they can get assistance from Tesla who are the big players in the
market and aware of how to handle such scenarios. Whenever a business firm like Tesla
incorporate a Joint Venture with a local business with SAIC Motor firm in China the other
business firm will not have to invest in R & D as Tesla is already having the latest technology
in the electric car which the domestic firm SAIC motor can get benefit of it and they can
utilize the capital for expansion of business or other purposes. The demand of imported goods
in China is increasing which Tesla needs to capitalize (Economist,2014). Considering labour
cost is less and they can do production in huge quantities and can sell it to other countries
where Tesla operations already exist which will help Tesla to reduce the cost of production
which will help them to increase the profit margin.
As Tesla is doing a Joint Venture and in earlier stages, they want the operations scale should
be high or low depending on that they need to allocate the resources as they need to have a
good understanding of market. It is always better to start the scale of operation with low and
then expand it to higher scale which will give them enough time to get stabilized.
In Chinese cultural Tesla need to develop a strong relationship in China in order to achieve
the business objectives and there are very high chances that they need to set up several
meetings (Today Translation,2019). In a formal meeting it is expected that in Chinese culture
you need to enter in a hierarchical order which is an important tradition for Chinese culture
(Today Translation,2019). If Tesla can business partners can communicate in Chinese
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language it will spread a positive impact for Tesla (Today Translation,2019). Considering
Chinese people are preferring electric vehicle in high demand over the past years (Bloomberg
,2018) and Tesla is already one of the established brands in electric cars it would be very
beneficial if Tesla can increase the sales in China.
Entry Mode Selection:
Considering both the strategies Franchising and Joint Venture I would prefer a Joint Venture
strategy where it would help the Tesla to have a control on the business operations and they
would be able to monitor it whereas in Franchising their involvement will be comparatively
less as there may be circumstances where they may not be able to utilize its resources fully.
In Joint venture they don’t need to start it from the scratch whereas in Franchising they will
have to start it from the scratch which will consume too much of time, whereas there are very
high chances that the competitors will capitalize it. Considering the market trend there are
many competitors available who will be willing to capitalize on such situations which will
reduce the competitor’s market share if they take time to establish their presence and it will
be beneficial for Tesla to undertake Joint Venture as a prefer strategy to expand its business
in China.
Personal Reflection:
Before starting this project, I was aware regarding the various entry strategy modes which a
business firm much undertake when expanding the business on an International level.
However, during this project, I understood Joint Venture which a common strategy to reach
to a specific market. For example, I read the case study of Joint Venture of JCB and Escorts
in India. Also, it includes expanding the existing business or moving into new markets
particularly overseas and it has a strong potential for a growth which will lead to innovation
which the Joint Venture business gets benefited. As Joint Venture is a limited liability for the
short-term and later, they can evaluate it but if the project is successful, they can continue the
project but if it fails, they can discontinue the project depending on their objectives set.
Further, Professor. Esam Mustafa has helped me a lot to evaluate it before arriving to any
solutions due to which I had made an effective choice in my project.
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References
Angus Whitley, E. B. (2019). Tesla Says New Technology Can Recharge a
Car in 15 Minutes Retrieved from Bloomberg:
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technology-can-recharge-a-car-in-15-minutes
Bloomberg (2018). China Is Leading the World to an Electric Car Future.
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Business Jargons (2019). Retrieved from Business Jargons:
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Chaoyi Lyu, M. K. (2018). Why China’s youth are choosing domestic brands:
they are proud of being Chinese. Retrieved from SCMP:
[Link]
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China Center (2019). The Evolution of Business: Restaurant Franchising in
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[Link]
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Economist (2014). China's addiction to luxury goods. Retrieved from
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Legal Dictionary (2019). Retrieved from Legal Dictionary:
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Nguyen, H. T., & Meyer, K. E. (2004). Managing partnerships with state-owned
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Serrano, A. R., Paul, J., & Dikova, D. (2018). International franchising: A
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Today Translation (2019). Doing business in China. Retrieved from Today
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