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Tesla entering South Korea Report


Introduction

Tesla is a California-based electric vehicle manufacturer that began in 2003. The organization’s founders – Marc Eberhard and Marc Tarpenning – wanted to provide a stylish yet effective electric vehicle for the masses. Before their conception, electric vehicles lacked aesthetic appeal as they were too focused on practical aspects. Tesla sources its products from different partners around the world such as Sotira in France, and Hethel in the UK.

This method has caused huge savings in production because the organization builds vehicles on demand; it does not have to spend huge sums on inventory management. Additionally, the company sells itself as an environmentally friendly alternative to conventional, fuel-powered vehicles. Its efficiency ratings are quite impressive even in comparison to hybrid cars.

These developments have not come without their fair share of challenges. First, the company lost its founder Eberhard in 2007 and two crucial engineers in 2012 after they resigned. Furthermore, it recorded a net income of $ -396.2 million in 2012, which was worse than the performance in the previous year of -254.4 million. This was due to economic conditions and a series of other internal changes like the loss of the two engineers.

However, a fundamental problem is that electric cars are a new form of technology that must compete with century-old organizations. Gas-powered cars have been in business since the early 1900s; therefore, it will take some times before the public warms up to Tesla. This means that the organization must seek new ways of becoming profitable, and international expansion in South Korea is one such alternative.

Environmental variables

Political and economic background of South Korea

South Korea was laden with a series of autocratic leaders during the late twentieth century. Surprisingly, this was the point when the country’s economy grew tremendously. At the time, the prevailing leaders chose to appoint technocrats who spearheaded the country’s economic growth.

The government was heavily involved in these results owing to its centralized fiscal policies, the regulation of foreign exchange, and incentives that were available to small businesses. Prior to the 1990s, South Korea had a number of five-year interventions that saw 9% annual GDP growth rates within this period of time. However, in 1987, South Korea replaced the autocratic regimes with democratic ones.

This change did not come with the promising results that many anticipated as seen in the 1997 Asian crisis. Instead, the country’s political leaders used public positions to reward persons who had been loyal to them. The technocrats that had caused those changes were no longer present. In 2013, the country has become a respected democracy in which its political stability contrasts dramatically to the autocratic regime of its Northern neighbor (Heritage 12).

In the 2000s to date, South Korea remerged as a global world leader. President Dae Jung spearheaded high growth rates in 2000 using emergency loans from the IMF. The country did well in 2004 and 2006 where it reported 4.6% and 5% growth in GDP, respectively. In the 2008-2009 global economic crisis, the country managed to maintain a positive growth pattern while other developed nations reported declines.

Furthermore, now the economy is the eleventh largest in the world. This country’s economic growth patterns have been resilient against external conditions owing to strong fiscal reserves. Furthermore, the South Korean government owes little in debt. This implies that when emergencies occur, the country can easily use its reserves to deal with the problem.

The Asian nation’s economic freedom ratings are impressive. It now stands at position 8 in the continent and 34 in the world. This country has free trade agreements with the EU and US. It is open to foreign investment and most of its private sector players are free to operate. Innovation and a well-educated work force are some of the reasons behind this conducive environment.

In fact, now South Korea is a world leader in internet usage. This nation exports a series of items that include textiles, shoes, electronics, telecommunication devices as well as automobiles. Industry and service sectors are the largest contributors to the economy. Its trading partners are China’s Hong Kong, Japan, Taiwan and the US. Additionally, the country has been known for its innovations in alternative sources of energy.

For instance, it engaged in the production of certain forms of nuclear energy by building plants around the country. These facilities account for approximately 40% of the nation’s energy needs. In the future, it is likely that the country will get more than half of its electricity from nuclear resources.

Regulations – Tariffs, quotas and import tax

As stated earlier in the economic background section, South Korea is highly conducive to foreign investment. The Free Trade Agreement between Korea and the US has enabled importers to benefit from a 7.9% basic tariff for these goods. Nonetheless, it is expected that in the next four years, the country will eliminate 95% of tariffs on imports from the US.

Therefore, companies like Tesla will have an advantage over other automakers because their products come from the United States. In addition to this, one must consider the flat 10% VAT on imports. Since electric cars are luxury items, then Tesla will need to pay 10 to 20% excise tax to import them into the country.

If a foreign investor brings in raw materials for manufacture in South Korea, then he or she is not expected to pay import tax. Nonetheless, the Ministry of Finance will have to approve the project or investment before it be labeled as duty-free. When importing products into the country, one will also have to pay insurance and freight at 15%, import tariffs at 5%, Vat at 10%.

These additional costs will be added onto the product cost to create a final import price. In order to trade in South Korea, an investor or importer must comply with certain requirements. First, the individuals will need to hold a commercial invoice. This will need to include information about the quantity of goods being transported, their unit value, description and any other shipping information.

A certificate of origin must also accompany the commodities. In order to access preferential treatment, the certificate must indicate that the goods come from the United States. Details about the harmonized systems as well as certification date will allow the US exporter to enjoy tariff deductions. All goods entering South Korea need to have a bill of lading in which the concerned company places shipping information.

Consignee name, destination, shipper’s name, insurance and freight charges as well as the price list need to be included. During the clearance process, South Korean customs employees will work to clear goods in as little time as possible. The declaration system is now electronically managed.

Therefore, an importer can get import clearance electronically even without physically appearing in the customs house. Unless a commodity falls within the prohibited or special goods list, an investor can easily do business in this country without being boggled down by intensive and bureaucratic customs clearance.

Competition

Comparison with Korean Companies

Currently, few organizations sell electric cars in South Korea. Most of the prime international automakers plan on introducing them in the next five years. For instance, General Motors will build its own version of an electric vehicle in 2014. Even the BMW and the Volkswagen will enter the Korean electric vehicle market in 2014 where they will also build their own version.

Some of the local manufacturers like KIA plan on introducing a model known as Ray for the electric vehicle market in the near future. Renault will introduce the model SM3 ZE sedan in Busan, which is a region in South Korea. However, all these plans are dependent on whether the Korean government will subsidize the vehicles. Failure to do so will cause automakers to overprice their electric automobiles and thus become uncompetitive.

Aside from companies that plan on introducing electric vehicles, some companies like Nissan are selling the Leaf brand in Korea’s market. GM plans on making some electric vehicles in Korea in 2014 but already imports US-made electric vehicles into the country; its key brand is Volt. Currently, the two companies are struggling to sell their electric vehicles. Their cars have low range and mileage.

Since Tesla already worked on this aspect, it is likely that the organization will record better performance in the country than some of these older brands. Competition for Tesla will not just come from electric vehicle sellers. The organization must contend with other automakers that know and understand the Korean market. Hyundai and Kia are companies to watch out for in the market.

Hyundai initially struggled with creating visually-appealing vehicles but it has already improved on this component through its Tucson and Elantra models. Additionally, Kia has built sedans that are better looking than vehicle from global leaders Toyota and Honda. Perhaps one of the most impressive characteristics of Kia and Hyundai is their reverence for quality. These organizations’ cars deliver when it comes to performance.

Hyundai has also earned a reputation for its fast responses to defects. Kia and Hyundai, as Korean auto manufacturers, have also worked on their marketing appeal. Kia is now revered for creative advertisements while Hyundai is respected for innovative sales deals. It has a policy that guarantees buyers a resale of the car if the buyer loses his or her job.

It should be noted that when Tesla enters the South Korean market, it will have to fight against an organization that is owned by the wealthiest Korean in the country. Hyundai Motor Group manages both Kia and Hyundai, and these two companies have enjoyed a lot of government support.

Even its owner, When Chung, was pardoned by the government when he faced criminal charges. The courts claimed that he was needed in order to run Hyundai. Tesla will need to take advantage of the deficiencies in management of this organization in order to succeed in South Korea.

Demand on electric cars

Demand for electric cars in South Korea is moderate. This mirrors trends on other parts of the world where electric vehicles have not done so well. Oil prices in South Korea have been relatively stable, so this has curbed enthusiasm for electric vehicles. Nonetheless, this low interest will be counteracted by the Environment Ministry’s plan to provide $25.3 million in investments for purchasing approximately one thousand electric vehicles (Choi 5).

South Korea is already prepared for the adoption of electric cars by instating charging stations. Estimates indicate that the country now has about 600 of these. While some countries in different parts of the world have more than double this number, it is still sufficient enough for an investor to provide the vehicles within the country.

Electric vehicle sales will also be promising because hybrid vehicle sales have tripled in 2012. This indicates that automobile consumers are now aware of their environmental impact and are willing to mitigate this though alternative sources of fuel.

Competitive Advantage

The first and most promising aspect of Tesla’s vehicles is that they are fully electric. This implies that consumers will get exactly what the company markets. This commitment to electric vehicles alone also implies that the organization has perfected its craft. The firm’s founder Martin Eberhard once stated that most electric vehicles from mainstream automakers have failed because they required consumers to alter their nature.

The cars were less aesthetically-appealing, had less range and low speed, yet their prices were higher than their gasoline counterparts. However, Tesla set out to change all this by offering consumers a vehicle that would be in tandem with their nature. Electric vehicles from Tesla are not like those from other automakers because their technologies have been sharpened and worked on exclusively.

Tesla does not have to divide its time between gasoline-powered cars and electric vehicles; this is not a sideshow for the organization. Tesla’s competitive advantage also lies in its ability to offer comfort through size. The company initially produced the Roadster but it is now out of production. Therefore, the new Model S is the car to beat in electric vehicle sales.

Tesla will introduce a newer model X in the near future. The Model S can accommodate 5 adults. It has a head room of 35.3 inches, a leg room of 35.4 inches and hip room of 54.7 inches. Even the trunk cargo area is impressive as it has a volume of 5.3 cubic feet (Tesla 6). This vehicle is thus quite comfortable.

The company also offers high miles per charge for the vehicle. Once the vehicle is charged, it operates on 92% charge efficiency. This is arguably one of the most impressive efficiency ratings in the electric vehicle industry. Some models like the Toyota Prius can only promise 82% efficiency while the Honda CNG has 86% efficiency. It is easy to access a universal connector and charger.

The mileage for the automobile is also above the rest of its competitors. The mileage for the Model S is 265. A person can charge their vehicle through a supercharger station. Vehicles of this nature can get approximately 120 miles from a 60 Kwh battery. Tesla offers a luxurious and elegant alternative in electric motoring. The Model S has an interior design that is unrivaled.

It has sleek accents, black leather seats, interior door handles, seven-speaker systems and memory storage that enables its users to store up to 500 songs. The car also comes with wireless technology and WIFI-capability. One may also enjoy cruise control when driving the car. It has climate control capabilities so as to manage the temperature and air distribution in the machine.

The automobile can sensor when the driver’s seat has been occupied so one has the option of controlling this device as they please. Environmental friendliness is perhaps one of the unique selling points of the car. It is a given fact that relying on electric power to charge vehicles is much cheaper in the long run than gas usage. Furthermore, even charging costs are cheaper than gasoline refueling or other modes of energy.

Aside from price sensibilities, the amount of green house gasses emitted by such a vehicle is negligible in comparison to the carbon-rich conventional fuels. Critics sometimes claim that electric vehicles still emit carbon-based gases owing to the factories that create those batteries. However, this argument is lopsided because it does not compare these carbon emissions to the ones that come from conventional vehicles.

Gas-powered cars keep discharging polluting gases into the environment, yet the fuel also comes from carbon-emitting plants. At least in the case of electric vehicles, polluting gases are confined to battery manufacturers. Furthermore, studies indicate that the Lithium-ion batteries used by the company are some of the safest in the market. In fact, they can be disposed off at the municipal waste site without any problems.

Positioning strategy

The organization should position itself as a high-end electric vehicle seller. It needs to create an image in the minds of consumers that it is the best in the business. However, because demand for electric vehicles is moderate, Tesla will need to generate enthusiasm for its product. One way of achieving this would be to build only a few hundred vehicles for the South Korean market.

They can target car enthusiasts and key stakeholders to talk about the qualities of the car. This needs to be seen as a fine tuned vehicle that will satisfy customer expectations. Once the product brand is known as the go-to car for quality and efficiency, then the organization can work on increasing its availability.

The aspect of quality may also be sold through the partnerships that the company has with other conventional automakers like Daimler and Toyota. These organizations have been sourcing for electric vehicle parts from Tesla. Such collaboration is indicative of the market leadership and quality that customers get from Tesla.

One should note that all the positioning must tie in with the green aspects of the company’s offerings. This organization is an electric vehicle manufacturer; therefore, it will position itself as the environmentally- friendly car of choice.

Both selling points need to be merged together such that individuals do not assume that the car is only appropriate for environmentally-conscious consumers or quality-conscious consumers. The Tesla models available in South Korea should be such that they appeal to these two categories of consumers in equal measure.

Time and mode of entry

As stated earlier, in the ‘regulations’ section, the government intends on introducing subsidies for Korean-made electric vehicles. Therefore, Tesla would benefit from manufacturing the vehicles in the country rather than exporting them to Korea. Since the company already sources parts of its batteries in the target market, it would make sense to take production there.

However, the company might not have thorough knowledge of the South Korean market. It would thus make sense to enter the market through a joint-venture partnership with a local automaker. Tesla would bring the expertise it possesses on electric vehicles and the local partner would demystify the Korean market (Koch 70). This would make the building cycle quite low.

Furthermore, it would minimize costs as raw materials to be used for automobile manufacture are not taxed in the same way as imported cars. The company is trying to return to profitability. It can achieve this by expanding into a country that has promising outcomes. Therefore, this move should occur as soon as possible.

It is preferable that the company does it at the beginning of 2014. If it waits until later, competitors like GM, Chrysler and Toyota may dominate the South Korean market with their electric-powered vehicles.

Marketing mix Analysis

The fixed price of the Model S should be $ 40,000. Since the product will be manufactured in South Korea, then there will be no additionally sales taxes or tariffs. The idea is to get the public to appreciate the exclusivity of the product. However, after a reasonable amount of time, the organization will introduce the model X, which will be cheaper. This Model will go for $ 30,000. Individuals will already appreciate the quality of the brand so they will not mind purchasing another make.

In terms of place, the automobiles will be available in different distributorships across the country. This will cement the company’s name in consumer’s minds. Tesla will create a battery network in South Korea designed to lock out other dealers. It will make these stations exclusive to their models so that other companies do not take advantage of their investment.

In terms of the product, the Model S will possess all the features that were mentioned in earlier portions of the paper. Great emphasis will be given to the efficiency, performance, elegance as well as the greenness of the product. Promotions will include a sales deal in which a generous refund package will be available to consumers (Garling & Thogersen 60).

Additionally, the company will allow for leasing of the car such that consumers who cannot own the car can still have access to it. The organization will use Korean celebrities to endorse the product and act as brand ambassadors. Additionally, the firm will have a marketing campaign in which it will utilize creative advertisements to sell the elegance and exclusivity of Tesla’s vehicles. Test drives through computer simulation will also give buyers a feel of the automobile.

Managing and controlling marketing efforts

Care will be taken not to over market the product as it is an exclusive commodity. This means that the frequency and the quality of advertisements will be in tandem with this brand image. The message will be simple elegance; no flamboyant promises will be made in this marketing strategy.

Conclusion

Tesla has been highly successful in the past but is currently experiencing losses. It needs a new strategy to turn around its results, and entry into South Korea is one alternative. The Asian country has a business-friendly environment especially for US-based investors like Tesla. It would be advisable to enter the country through a joint venture in order to reduce cycle times and take advantage of the partner’s local knowledge.

Tesla ought to position itself as a high-quality green vehicle. This will work by generating a buzz concerning the automobile and building brand recognition. It should then introduce an inexpensive model for the masses after some years.

Works Cited

Choi, Kyong-Ae. “Seoul catches heat over electric cars.” Wall Street Journal 14 Nov. 2012: 5. Print.

Garling, Anita & John Thogersen. “Marketing of electric vehicles.” Business Strategy and the Environment 10(2001): 53-65. Print.

Heritage. . 2013. Web.

Koch, Adam. “Selecting overseas markets and entry modes: two decision processes or one?” Marketing Intelligence and Planning 19.1(2002): 65-75. Print.

Tesla. Model S specs. 2013. Web.

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IvyPanda. (2020, May 28). Tesla entering South Korea. Retrieved from https://ivypanda.com/essays/tesla-entering-south-korea/

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"Tesla entering South Korea." IvyPanda, 28 May 2020, ivypanda.com/essays/tesla-entering-south-korea/.

1. IvyPanda. "Tesla entering South Korea." May 28, 2020. https://ivypanda.com/essays/tesla-entering-south-korea/.


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IvyPanda. "Tesla entering South Korea." May 28, 2020. https://ivypanda.com/essays/tesla-entering-south-korea/.

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IvyPanda. 2020. "Tesla entering South Korea." May 28, 2020. https://ivypanda.com/essays/tesla-entering-south-korea/.

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IvyPanda. (2020) 'Tesla entering South Korea'. 28 May.

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