Introduction
It is pivotal for multinational enterprises (MNEs) to be able to adequately assess the advantages and disadvantages of entering the market of a new country (Peng, Wang & Jiang 2008). This paper explores the possible legal, political, and economic pros and contras of Tesla’s entry in Argentina, focusing on the facts that this is a developing country (International Monetary Fund 2015) that is a member of WTO (World Trade Organization n.d.b) and of Mercosur (Filho, Lixinski & Giupponi 2010). The Porter’s Diamond model (Porter 1990a; Porter 1990b) is also applied when analysing the economic advantages and disadvantages of Argentina’s being a developing country for Tesla’s entry.
Background
The Country: Argentina
Argentina is a developing country (International Monetary Fund 2015, p. 151). It is located in the southern part of South America; it stretches a long way from north to south, and its landscapes range from tropics to tundra; it has access to the Atlantic Ocean in its eastern part, as well as to the Drake Passage in its southern part (Central Intelligence Agency 2017). The country’s population is approximately 44,886,748, according to a July 2016 estimate; the population is mostly White (97%, primarily Spanish and Italian), whereas the rest of the population (3%) is comprised of mestizo, Amerindian, and some other non-White ethnic groups (Central Intelligence Agency 2017). The Argentines mainly speak Spanish, which is the official language in the country; other widespread languages are Italian, English, German, French, and several indigenous languages (Central Intelligence Agency 2017). Its population is generally rather young, as can be seen from Figure 1 below; the median age is 31.5 years (Central Intelligence Agency 2017). It is stressed that if the youth are provided with high-quality education and sufficient employment, the country could experience strong economic growth (Central Intelligence Agency 2017). The country currently has a democratic government chosen via universal and compulsory elections (Central Intelligence Agency 2017).
The Company: Tesla, Inc.
Tesla, Inc. is an American international company which focuses on production of electric cars, energy storage devices (accumulators), and solar panels. The company is probably most known for its electric vehicles, which it produces in the U.S. and the exports to other countries, and which will be the focus of this paper. It was chosen due to its focus on environmental friendliness (e.g., electric cars can be more environmentally friendly than fuel-burning vehicles), which is appealing to the author of this paper.
Tesla is currently present in several countries of North America, Europe, Asia, Australia, and the Middle East; the company’s website lists 27 countries in which its stores are present (Tesla n.d.). Tesla boasts a large share of electrical vehicle market in the U.S. – nearly 30%, as can be seen in Figure 2 (Morris 2017). Simultaneously, when it comes to total car sales, Tesla’s share is much more modest; for instance, Tesla sold nearly 76,000 electric vehicles in 2016, when Ford sold approximately 6.7 million cars (BBC News 2017).
Tesla’s cars, however, are oriented on the high-end part of the market rather than on the mass consumer. Additionally, as was noted, Tesla also sells products other than cars, such as accumulators (BBC News 2017); for instance, its Gigafactory (a batteries manufacturing facility) has recently begun production, and is still under further construction; it will reach its full potential in 2020 (Lee 2016).
Impact of Being a Developing Country on the Attractiveness of Argentina for Tesla
Legal Advantages and Disadvantages
Argentina has a civil law system originating from West Europe (Central Intelligence Agency 2017). As a developing country, it has some legislation-related issues which may pose a barrier to MNEs wishing to enter the country. For instance, significant changes in the legislation may sometimes occur; in particular, Argentine tax legislation is complex and changes frequently (Department for International Trade 2016), which may create unexpected problems for MNEs.
There might exist problems with intellectual property, in particular, with protection of trademarks, which may cause issues when considering Tesla’s products that are not vehicles; legal proceedings are complex and may last for years, which complicates resolving legal issues (Department for International Trade 2016). Thus, legislation appears to create issues for MNEs such as Tesla, although not all of them are significant. Also, although there previously existed legal limitations on international trade in Argentina, the state currently takes steps to liberalize this type of trade (Central Intelligence Agency 2017), which may further facilitate MNE operations.
Political Advantages and Disadvantages
Argentina has experienced several significant crises in the 20th century, and suffered from a public strife at the beginning of the 2000s, when several presidents were forced to resign due to public protests (Central Intelligence Agency 2017). Nevertheless, the strife ceased, and today Argentina enjoys a fairly stable, democratic political system in which the authorities are chosen in universal elections. The current government strives to liberalize the economy (Central Intelligence Agency 2017; ‘New president vows to liberalize Argentine economy’ 2015), which means that there is a beneficent political climate for MNEs entering the country.
Economic Advantages and Disadvantages
Argentina, as a developing country, has had a history of economic crises which set it back in development. Consequently, the country has rather high poverty rates: 30.3% of Argentines were below poverty levels in the second half of 2016 (Reuters 2017); in 2014, 4.28% of the population lived on 3.10 USD or less per day (The World Bank n.d.). Nevertheless, the poverty rates are stated to be currently going down (Reuters 2017). The currently high poverty levels present a disadvantage for Tesla; the company’s electric vehicles are aimed at high-end market, so it is better for Tesla if people are wealthy. Nevertheless, the decreasing poverty levels and the large potential for growth in a country that is, on the whole, quite rich, present a potential advantage (Thirlwall 2013).
Porter’s diamond model (Porter 1990a; Porter 1990b) can be used for further analysis, which is summarized in Table 1 below. However, it should be noted that the used Porter’s model has been described as offering critical insights, but having a number of weaknesses, especially when applied on the national level (and not on the level of the firm or industry), which should be taken into account when considering this analysis (Grant 1991; Smit 2010).
Table 1. Using Porter’s diamond model for analyzing advantages and disadvantages of Argentina for Tesla’s expansion. Source: developed by the author for this work.
Impact of Being a Member of WTO on the Attractiveness of Argentina for Tesla
Legal Advantages and Disadvantages
Argentina is a member of WTO (World Trade Organization n.d.b), which creates several legal benefits for Tesla if it is to enter Argentina. First and foremost, Tesla will have to primarily comply with WTO’s rules of international trade, which means enhanced transparency and simplicity (World Trade Organization n.d.a); these contrast with the previously-mentioned complexity of Argentine rules. The customs procedure should also be simplified according to WTO’s standards (World Trade Organization n.d.a), which is important for Tesla as it will likely operate as an importer of electric cars to Argentina (Tesla 2017). Possible lower tariffs also lead to lower prices for clients, which means increased sales for the company. No significant disadvantages were found.
Political Advantages and Disadvantages
There exist several political advantages of Argentina’s being a member of WTO for Tesla. For instance, WTO is stated to stimulate political stability on the international level by providing a framework for dispute resolution and encouraging good political relationships between its members (Hagiu, Barbulescu & Brinzea 2014), which means that on the whole, Tesla risks less when it enters a country that is a member of WTO. It also means that in case of potential conflicts, Tesla will be able to more fairly resolve the dispute, and, importantly, will have a distinct and clear set of rules to comply with (World Trade Organization n.d.a). No considerable disadvantages were found.
Economic Advantages and Disadvantages
On the whole, WTO aims at creating the situation in which the tariffs for imported goods are quite low, and that such goods can fairly compete with domestic goods in the market of a country (Hoekman & Kostecki 2013; World Trade Organization n.d.a). Therefore, the fact that Argentine is a member of WTO might mean that goods imported in Argentina can have free access to its markets, and that domestic products do not gain preferential treatment (Balaam & Dillman 2016); in this case, Tesla will not have to raise the price on its products for customers to compensate for entry tariffs. No considerable disadvantages were found.
Impact of Being a Member of Mercosur on the Attractiveness of Argentina for Tesla
Legal Advantages and Disadvantages
Argentina’s being a member of Mercosur (Office of the United States Trade Representative n.d.), a regional trade agreement comprised of several local states, provides several legal benefits for Tesla if it is to enter Argentine market. For instance, the fact that Mercosur is aimed at creating a common market and enhancing trade liberalisation (Filho, Lixinski & Giupponi 2010, pp. 87-90) may facilitate a further expansion into Mercosur countries; it may also be easier to deal with tariff and customs issues.
However, there is also a disadvantage: the principles of WTO and Mercosur do not always agree (Filho, Lixinski & Giupponi 2010, pp. 133-134), which means that certain conflicts may need to be resolved while complying not only with WTO’s standards but also with Mercosur’s regulations (International Trade Administration n.d.), complicating the resolutions process.
Political Advantages and Disadvantages
Apart from Argentina, Mercosur includes several other countries, such as Brazil, Paraguay, Uruguay, and Venezuela (Filho, Lixinski & Giupponi 2010). These countries are also developing economies, which means that there exists a risk of political instability in these countries, which might present a disadvantage (McCarthy 2016). If such instability develops, it may have a considerable impact on Argentina, which may lead to adverse consequences for Tesla as well. It does not appear that there are considerable political benefits for Tesla.
Economic Advantages and Disadvantages
Economically, Argentina’s being a member of Mercosur means that if Tesla expands into Argentina, it can then more easily become a part of the rest of the members of this organisation, which may be advantageous to Tesla. Also, it is possible for Tesla to enjoy some of the benefits of the common market (Filho, Lixinski & Giupponi 2010), for instance, to more easily acquire the benefits and resources it needs from all the member countries (International Trade Administration n.d.). The disadvantages are that the company will face additional competition from its rivals in the rest of the countries as well.
Conclusion
On the whole, there appear to be numerous advantages and few disadvantages for Tesla’s entry in Argentine market when it comes to Argentina’s being a member of WTO and Mercosur. However, when discussing the pros and cons of Argentina’s being a developing country, Tesla’s entry, while facilitated by several benefits, can face a number of disadvantages as well. Nevertheless, it appears that Tesla has rather good prospects for expanding into Argentina.
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