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Tesla Company’s Entry Into Argentine Market Report


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).

Argentine population pyramid.
Figure 1. Argentine population pyramid. Source: 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).

Sales of electrical vehicles in the U.S; two Tesla’s models account for nearly 30% of sales.
Figure 2. Sales of electrical vehicles in the U.S; two Tesla’s models account for nearly 30% of sales. Source: Morris (2017).

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.

Element of Porter’s Diamond Model Facts Advantages Disadvantages
Factor Conditions The infrastructure is currently poor (Newbery 2016). The labour force has the potential for development (Central Intelligence Agency 2017)
  • If properly developed, the labour force can facilitate innovation;
  • Investment in infrastructure is planned (Newbery 2016), which presents an opportunity
The prospects depend heavily on future development (Peng, Wang & Jiang 2008)
Demand Conditions The customers’ tastes for high-end electric cars are probably not very sophisticated in a developing country Easy to satisfy the clients’ desires Unsophisticated clients present little opportunity for further Tesla’s innovation and development
Related Industries Other car manufacturers and retailers are present, such as Alfa Romeo, BMW, Chevrolet, Chrysler, Citroen, Ford, Jaguar, Toyota, etc. (Garcia 2016) These companies are known in the international market, and their presence may stimulate further Tesla’s innovation and development The companies are competitors
Firm Strategy and Structure Tesla manufactures cars in the U.S. and then sells them to other countries (Tesla 2017) No need in effort to adjust manufacturing to the local environment Less opportunity for change and development, which could have happened while adjusting manufacturing to the local specifics

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.

Reference List

Balaam, DN & Dillman, B 2016, Introduction to international political economy, 6th edn, Routledge, Abingdon.

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Department for International Trade 2016, Doing business in Argentina: Argentina trade and export guide. Web.

Filho, MTF, Lixinski, L & Giupponi, MBO 2010, The Law of MERCOSUR, Hart Publishing Ltd., Oxford.

Garcia, J 2016, . Web.

Grant, RM 1991, ‘Porter’s “Competitive advantage of nations”: an assessment’, Strategic Management Journal, vol. 12, pp. 535-548.

Hagiu, A, Barbulescu, M & Brinzea, VM 2014, ‘The advantages of WTO commercial system’, Scientific Bulletin – Economic Sciences, vol. 13, no. 2, pp. 78-86.

Hoekman, BM & Kostecki, MM 2013, The political economy of the world trading system: the WTO and beyond, 3rd edn, Oxford University Press, Oxford.

International Monetary Fund 2015, World economic outlook. Uneven growth: short- and long-term factors. Web.

International Trade Administration n.d., Argentina. Web.

Lee, D 2016, Inside Tesla’s gigantic Gigafactory. Web.

McCarthy, M 2016, ‘6 things you need to know about Venezuela’s political and economic crisis’, The Washington Post. Web.

Morris, C 2017, . Web.

‘ 2015, Financial Tribune. Web.

Newbery, C 2016, ‘‘, Latin Finance. Web.

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Peng, MW, Wang, DY & Jiang, Y 2008, ‘An institution-based view of international business strategy: a focus on emerging economies,’ Journal of International Business Studies, vol. 39, no. 5, pp. 920-936.

Porter, ME 1990a, ‘‘, Harvard Business Review. Web.

Porter, ME 1990b, The competitive advantage of nations, The Free Press, New York.

Reuters 2017, Update 1 – . Web.

Smit, AJ 2010, ‘The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries?’, South African Business Review, vol. 14, no. 1, pp. 105-130.

Tesla 2017, . Web.

Tesla n.d., Find us. Web.

Thirlwall, AP 2013, Economic growth in an open developing economy: the role of structure and demand, Edward Elgar Publishing Ltd, Cheltenham.

The World Bank n.d., Poverty headcount ratio at $3.10 a day (2011 PPP) (% of population). Web.

World Trade Organization n.d.a, . Web.

World Trade Organization n.d.b, . Web.

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IvyPanda. (2020, July 30). Tesla Company’s Entry Into Argentine Market. Retrieved from https://ivypanda.com/essays/tesla-companys-entry-into-argentine-market/

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"Tesla Company’s Entry Into Argentine Market." IvyPanda, 30 July 2020, ivypanda.com/essays/tesla-companys-entry-into-argentine-market/.

1. IvyPanda. "Tesla Company’s Entry Into Argentine Market." July 30, 2020. https://ivypanda.com/essays/tesla-companys-entry-into-argentine-market/.


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IvyPanda. "Tesla Company’s Entry Into Argentine Market." July 30, 2020. https://ivypanda.com/essays/tesla-companys-entry-into-argentine-market/.

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IvyPanda. 2020. "Tesla Company’s Entry Into Argentine Market." July 30, 2020. https://ivypanda.com/essays/tesla-companys-entry-into-argentine-market/.

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IvyPanda. (2020) 'Tesla Company’s Entry Into Argentine Market'. 30 July.

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