just comment on this essay from 4 aspects
Tesla’s business structure and degree of engagement in international activities can be determined by the three factors from eclectic paradigm. With its existing exclusive ownership advantages, opportunistic behaviour in expanding into China with the location advantages offered, Tesla’s internationalisation in its host market, China, will be discussed in this essay. Internalisation advantages allow businesses to obtain competitive benefits by transferring firm-specific advantages across national borders (Rugman, 2010; Gaur, et al., 2019). Internalisation also enables businesses to choose their entry and interaction modes with foreign-owned subsidiaries to overcome cross-border barriers and save transaction costs by sharing their offerings, knowledge and expertise internally (Gaur, et al., 2019; Narula, 2019). There are three objectives set for Tesla’s host market: share enlargement, independence from China’s joint venture obligations and intellectual property protection (Allison, 2021). In order to achieve the objectives, Tesla has adopted a transactional strategy for its expansion in China (Ponders, 2021). Its entry mode has shifted from non-equity to equity and has turned from exporting to manufacturing electric cars (PressFrom, 2017). Moreover, it has continued its home market’s direct selling business model to have complete control over its supply chain (Ponder, 2021; Wu & Wang, 2021; Zucchi, 2021). Through a vertical integration across battery development, production, distribution and retail transactions, Tesla is able to lower costs, learn and foster innovations more efficiently. For instance, it not only produces highly developed EVs, but also raises brand awareness, offers excellent purchase experience and good service coverage with its supercharging networks, service centres, galleries, showrooms, online ordering etc. (Li, et al., 2019; Xu, 2020; Allison, 2021; Ponders, 2021; Zucchi, 2021). To realise the potential advantages and degree of global integration of a business, the global business model, AAA strategies, which comprises aggregation, adaptation and arbitrage, must be addressed for international competition. By considering these three aspects, businesses can have a deeper understanding for strategic implications to cope with the differences in host markets (Ghemawat, 2008). Tesla’s brand position has transitioned from expensive, low-volume, high-tech luxury cars to Model 3, a comparatively high-tech yet affordable priced for global market (Miteva, 2020; Xu, 2020; Ponders, 2021). With low-cost locally sourced parts and government subsidies in China, Tesla is able to enhance manufacturing capacities while attaining cost efficiency from economies of scale (Creative Works, 2020; Xu, 2020; Ponders, 2021). Given all the factors, evidence suggests that Gigafactory Shanghai has the capacity to manufacture 4,000 units per week and 200,000 electric vehicles per annum (Creative Works, 2020). Furthermore, advancements in research and development will assist Tesla achieve economies of scale by minimizing the selling price (Ponders, 2021). It plans to build its first Tesla research and development centre and design centre in Shanghai, and is recruiting local Chinese expertise such as engineers, designers, operations managers, content managers and many other positions to help develop a unique China model (Sun & Goh, 2020; Yu, 2020; Lambert, 2021; Merano, 2021). As a result of global standardisation, aggregation enables Tesla to reach scale and scope economies (Ghemawat, 2008). Foreign businesses’ product offerings must be locally responsive to meet domestic preferences, demands and buying power in order to prosper in the host market (Ghemawat, 2008; Mike & Klaus, 2016, p.395). As Tesla delivers high-tech distinguishable electric vehicles, the key changes made to comply with the Chinese market are its product features and marketing approaches (Xu, 2020; Wu & Wang, 2021). Prior to the differences in charging standards and charging ports between China and the United States, Tesla has altered its EVs to match domestic requirements and issued adapters for its models to fit others’ charging stations (The Wall Street Journal, 2015; Bloomberg, 2017). It has rapidly developed charging infrastructure to improve accessibility and thereby enhance sustainable growth in China (Li, et al., 2019; Allison, 2021; Wu & Wang, 2021; Zucchi, 2021). Given that most luxury cars are driven by drivers, it has redesigned the backseat of its Model S to make it as desirable as an “executive backseat” (Davies, 2013). It has also positioned its brand recognition by delivering multiple models with varying quality and reputation to target three major market segments in China based on their purchasing power. For example, high-end sports vehicles like Roadster are specifically aimed for rich social class; luxury vehicles such as Model S and Model X are for the premium young market, while Model 3 is targeted at the middle-class segments (Xu, 2020). Besides, Tesla has localised marketing through prize lotteries, giveaways, test-driving and live streaming to interact with people across different cities in China. To raise brand recognition, it has focused in expanding through Chinese digital platforms such as Tmall flagship online shop, Xiaohongshu, Douyin, Kuaishou, as well as collaborating with other local businesses in shopping festivals and campaigns (Creative Works, 2020). Apart from that, to cater local demands, Tesla will produce a custom-designed $25,000 ‘Chinese style’ model in 2024 by hiring local expertise for R&D innovation (Yu, 2020; Lambert, 2021; Merano, 2021). Hence, these are the adaptation to local distinctions adopted by Tesla. As discussed previously, China is an appealing site for foreign direct investment because of its mature supply chains, diverse resources, skilled labour, cheap labour costs, high demand and other enticing factors (Allison, 2021). By taking advantage of the location, Tesla is able to localise production, boost production capacity and reduce costs with Gigafactory 3 (Ponders, 2021). For instance, Gigafactory 3 has helped to reduce around 65 percent of costs in Tesla’s Model 3, allowing it to lower its selling price by 18 percent when compared to cars manufactured in the United States (Creative Works, 2020; Lee, 2020). It has also improved the perceived benefits of “Made in China” products to be high efficiency and quality with its locally made electric vehicles (Creative Works, 2020). It began exporting over 30,000 China-made Model 3 globally from 2020, with the intentions to fully localise the whole production process and sell electric vehicles internationally in the future, as indicated by its research and development centre for designing the $25,000 electric cars (Lee, 2020; Sun & Goh, 2020; Lambert, 2021). Therefore, arbitrage strategy enables businesses to utilise price differences across various locations. Given all of the aforementioned considerations, it is reasonable to conclude that Tesla has made a right move to expand in China. It recognises its ownership, location and internalisation advantages and has wisely utilised all three AAA strategies to integrate its business into its host market. Tesla, having its highly innovative technology, strong international brand recognition and willingness to engage with diverse business environments, have helped to pave its way for its business’s success in China (Li, et.al, 2019; Miteva, 2020; Xu, 2020). However, as Tesla continues to thrive in China, several issues have arisen, including military prohibitions, government regulations, vehicle operation problems, consumer rights, cultural differences and so on (He & CNN Business, 2021; Xi, 2021). Tesla must continue to advance in order to accommodate all the circumstances for long-terms success in China. Word Count: 1000 words Reference List Allison 2021, ‘Tesla in China: Dominating the EV Market with 0 Marketing Budget’, Daxue Consulting, viewed 6 June 2021,
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