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C6_M1

1. Draw the value chain for the firm (again).
C2_M1.


2. Analyze firm’s resources and capabilities. Are the capabilities distinctive, and difficult to imitate? May they create a competitive advantage? To what extent is this competitive advantage sustainable?
Resources are firm-specific assets that cannot be easily duplicated or acquired by other firms in well-functioning markets and they can directly affect the ability of a firm to create more value than other firms. In Tesla’s case, we have to mention the brand-name reputation. It is common knowledge that when a person thinks about an electric car, what comes to her or his mind is Tesla. They were the pioneers in the product and this renown is still there. The high quality and price give Tesla this reputation. This article shows Tesla first on its 2019 list of auto brands ranked by owner satisfaction.[1] Finally, we should mention that “Tesla is probably best known for its charismatic CEO Elon Musk”.[2]

Regarding the patents, we can see here a list[3] of lots of them. What is important to mention is that there are more than 278 patents and some inventions developed by Tesla were not put into patent protection. This means that this company has still more value than the “official” value that is protected.

Finally, the corporate culture of Tesla is quite important talking about its resources. Things that its business model, organizational structure, the leadership inside, the customer centricity, a clear vision, the boldness or the openness are key factor in this culture.[4] Tesla Inc. identifies six main features of its organizational culture:
·      Move Fast
·      Do the Impossible
·      Constantly Innovate
·      Reason from “First Principles”
·      Think Like Owners
·      We are ALL IN[5]

On the other hand, capabilities are activities that a firm does especially well compared with other firms. In this case, it is common knowledge mentioning the particular technologies that Tesla uses.

“What makes this part of the strategy truly unique is not just that Tesla produces electric vehicles, but that it introduced a new hardware and software architecture (the way you put the car together). For example, a Tesla has more software than the average vehicle and it is integrated around a single central software architecture. Although most gas-powered cars have software too, they typically have less software and operate on a different architecture making it more challenging to imitate Tesla’s ability to update software and optimize vehicle performance.

Tesla’s hardware architecture — a flat pack of batteries at the base, two electric engines (front and rear), no transmission, etc. —also gives it an advantage over competing electric vehicles built on traditional vehicle architectures, such as a lower center of gravity, greater energy density, and more efficient battery management. This means that pound-for-pound, Tesla tends to beat out competitors who try to leverage parts of the old internal combustion vehicle architecture, for example, by putting batteries in the trunk rather than in a flat pack at the bottom.”[6]

Regarding the particular business functions of Tesla, we should mention that “Tesla's unique business model integrates aspects of being an auto-maker, a hardware supplier, and a tech company.”[7] What makes Tesla a company with excellent business functions is this integration related to direct sales to its consumers, the services offered and the supercharger network.

To sum up, we can see that Tesla has not only some resources such as patents or good reputation, but also capabilities related to business functions, well coordination between activities of the value chain and particular technologies. Although some of these capabilities can be copied by other firms, they do not have them right now, so this means that Tesla takes advantage of these, while it takes also advantage of its own resources.

Moreover, these capabilities are sustainable, because it is not easy to copy a whole culture of a company or the way it manages the activities of the value chain. It is possible, but it takes a lot of time, money and costs in human resources. However, it is true that durability is a problem taking into account patents or human capital. Because of for other companies it is difficult to have this human capital and incorporate it to the management of the value chain and the culture, it is difficult to maintain these levels in Tesla forever, workers are going to chain eventually.

To sum up, we have to say that Tesla has resources and capabilities sustainable but up to a point. However, because of this popularity and well-known brand, it is likely to happen that the new people that will be potential workers will know about the kind of jobs and the culture that Tesla offers, so this means that maybe there will be a legacy with this values and working behaviours.


3. Use your previous analyses to identify the current competitive position of your organization (how the firm tries to create economic value).
As we have mentioned before, Tesla has a competitive position in terms of technology, business model, brand recognition and organizational culture. With all these, including everything mentioned before, Tesla obtains enough value for its cars in order to sell them in exchange of a particular price that is well-received from the customers, who are willing to pay it. Furthermore, companies are used to sell their cars through franchised dealerships, but Tesla does not do this and this can be very valued from its customers, who see this as a distinction and a “more personalized” way of buying.

The value that Tesla creates is higher than most of the cars produced by other companies. It is the company pioneer in electric car and with all the technology patented that we have seen that it has, it is very likely to be the only company that offers this unique technology in its cars.

Moreover, even if other companies had the technology that Tesla uses, they may not be able to take advantage of it or the customers would not value it if they did not have the business model and the organization that Tesla have.


4. Draw a value map to graphically show the current competitive position of the firm. In the map draw the strategic position of the firm and that of at least one of its main competitors. To do so, you will need to make a credible assumption, for your firm and also for the competitors you want to position in the map, on:
•       their current price levels
•       their current perceived quality levels
You may indicate what techniques you would have used in real world to determine both.

Instead of creating a new one, I discovered this one on the Internet, but it did not show Tesla in it and I will do some arrangements.




https://rockstarsbm.wordpress.com/2014/11/23/perceptual-maps/

If we look on the Internet, the average price for Audi is $37,400, for Mercedes is $40,000 and for Ferrari between $180,000 and $450,000. Taking into consideration Tesla, the new 2020 Model S starts at $80,000 but can run as high as $102,000 as features are added.[8] If we look on the Internet for the other average prices and we take into account factors already analyzed in past assignments, we will agree with this draft. This means that our final value map include these brands:



5. Does the organization enjoy a competitive advantage over the rival(s) shown in the value map?
Up to this point, we have discovered hundreds of times that Tesla offers better quality and because of this, the price is also quite higher. However, what are the key aspects in which Tesla has a competitive advantage above its competitors?

His differentiation strategy includes several aspects in its cars: the luxurious EV and the battery supply chain 10. The company competes not only with luxury vechicles, but also with economy EVs and hybrid-electric vehicles. Moreover, Tesla takes advantage of economies of scale while reducing costs of batteries.[9]

The chargers and batteries are also different from the ones of other companies. They enable customers to drive their vehicles over long distances. Tesla has quicker chargers, they charge to 80% in only 20 minutes. The advanced software is also unique, because it is the most advanced user-control one ever implemented in a vehicle. [10] As we have already said, technology is key in the value creation of the firm. Furthermore, we cannot forget the big amount of superchargers that Tesla has. We saw the number of chargers just in Navarra, but Tesla has over 14.000 superchargers at 1.600 supercharger stations around the world, and they are always creating more.[11]

The motor is not far away from the previous mentioned things. The design is spectacular. “No other company has an electric motor on the market that comes close to the performance/price ratio of the Tesla Model 3’s permanent magnet synchronous reluctance motor.”[12]

Finally, let us remember the figure itself of the CEO Elon. We mentioned in previous assignments his importance, but in this point, we have to point him specifically. “Having a charismatic and visionary CEO leading a company cannot only push the company to achieve great things, but it helps to get more attention and mindshare from the public.”[13] He is a competitive advantage in itself.


6. How high is the slope of the consumers’ indifference curve? Is there only an indifference curve or there may be different consumers’ segments whose preferences should be represented by indifference curves with different slope?
The industry segmentation is characterized by the varieties of the products and the different types of customers. In the case of this market, it is common knowledge that almost every brand has its different competitive advantage, or they offer different services and quality in relation to its price. The preferences are very different among them, some people really need a luxury car because of the quality of the seats or the speed a car can have, while other people just need a vehicle to drive around their city in order to reach their jobs. Because the services have different levels of preference, there are different indifference curves for the market of cars.

The variety that the product “car” can have is almost infinite and the number of types of customers that exist is the same, because the different necessities are also infinite related to this product. The personalization of this products makes it to have thousands of variations.
Because of this, there cannot be not only one indifference curve, there has to be more. Two products located in the indifference curve offer the same consumer surplus (B-P). A consumer choosing among products located along this indifference curve would be indifferent among the offerings.

However, in this market the perceived benefit is not going to be the same for every brand to every customer, because the different companies offer products really different in terms of quality, services and personalizing options. This means that a person can see the perceived benefit of a brand such a x, but of another brand that it is more luxurious a perceived benefit of less than x, because this person thinks that he does not need all this luxury, so he does not understand this “better” quality extra of the second brand.

The consequence is that there are going to be lots of indifference curves, because even if the market is cars’ market, inside this market the cars happen to be like different products in themselves. There are such big differences among what the brands offer that some people just do not understand the “excessive” price that x brand wants to earn for “just a car”. On the contrary, people that understand these prices tend to say that “it is not just a car”.


7. In case you identify different segments, what strategy is developing the firm to position itself in the final market (broad coverage, focus)?: depict the industry segmentation matrix that shows the strategic position of the firm in terms of where the firm seeks to create value.

The strategy of Tesla is clear: focus. This can mean both, that the company offers a narrow set of product varieties or that the company serves a narrow set of customers, or both at the same time. In this case, we can see that the variety of types of car and products is wide, but the type of consumer is more specific.

Thus, Tesla practices the strategy of customer specialization. It offers an array of related products to a limited class of customers. The average customer of Tesla, as we have mentioned sometimes before, is a person in his/her 30s or more, middle or upper class, determined, ambitious, explorer and “succeder” with a perception of being environmentally friendly and with long-term cost effectiveness[6]. Once this person decides that he or she wants a Tesla’s car, the company has to discover want this customer exactly wants in order to give him or her the best experience of buying a car or other products Tesla offers.


Vehicles
S
X
3
Evs
30+
Males&Females
Middle class & upper class
Determined & ambitious
Status
Perception of being environmentally friendly
Long-term cost effectiveness
Aspirer, Succeeder, Explorer, Reformer
Energy storage
Powerwall 2
Powerpack 2
25-65
Males&Females
Middle class & upper class
Determined & ambitious
Status
Perception of being environmentally friendly
Long-term cost effectiveness
Aspirer, Succeeder, Explorer, Reformer
Solar energy systems
Solar panels
Inverters
Racking
Electrical
Hardware
Monitoring
Device
30-65
Males&Females
Middle class & upper class
Determined & ambitious
Status
Perception of being environmentally friendly
Long-term cost effectiveness
Aspirer, Succeeder, Explorer, Reformer

8. In order to extract most profits from a potential competitive advantage, would you recommend the firm to pursue a share strategy or a margin strategy?
The strategy of Tesla in this case is also clear: benefit leadership. A firm that follows a strategy of benefit leadership creates more value that its competitors by offering products that have a higher perceived benefit than its rivals. This can happen in three qualitatively different ways, but we are going to focus on the way that Tesla uses, that is the firm can offer substantially higher B and C.

As we have mentioned in all the assignments, Tesla uses unique technology in its car production and this technology is expensive, even more expensive than the average investment needed to enter in cars’ production market (entry barriers are high, as said also before). Furthermore, this technology is seen by customers such a really high benefit, because they are willing to pay a bigger price than for other cars that does not have this technology. The price has a lot to do in this case, because sometimes average customers may think that a bigger price is related to more quality. Sometimes it is not like that, but we can see that in Tesla it really is.

The price elasticity of demand is high in this market, because we saw that there is vertical differentiation. This means that, if the company has a benefit advantage, in this context, it should use a share strategy. This strategy involves maintaining price parity with competitors and let benefit advantage drive share increases. A modest price bike loses lots of market share because of this high price elasticity, so that Tesla should exploit its advantage through higher market share than competitors.

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C5_M2

What would you add to your Five Forces Analysis in activity C5_M1 after reading and studying the Notes on Coopetition and the Value Net document? Show your answer in the form of no more than 10 bullets of information consisting of no more than 100 words each.

In this case, Brandenberger and Nalebuff observe that interactions among firms can sometimes enhance profits and emphasize the many positive interactions that Porter generally ignore. Let us analyze these positive interactions that may affect Tesla and its sector.

·      In Tesla’s case, I would say that it has been a company that has made great efforts to set technology standards. It was the first company that implemented the electric cars and it was a change of the paradigm because the competitors did have to make an effort in order not to stay behind in this kind of product offer. The whole industry changed because of Tesla’s implements.

·      Regarding the cooperation among firms, we have to mention the cooperation between Tesla and Panasonic. They made a Gigafactory in order to improve efficiency and share costs and profits. This one was created in 2013 and in this graph[1],  we can see that Tesla’s revenue increased considerably from this year.



In support of these ideas, we should introduce the concept of the Value Net. This consist of suppliers, customers, competitors and complementors. This analysis assesses opportunities. It encourages firms to work toward common goals by showing how each firm can prosper even while cooperating with erstwhile competitors.

·      Regarding the suppliers, we should mention the different suppliers of the different inputs that Tesla uses in its production. These are AGC Automotive (windshields), Brembo (brakes), Fisher Dynamics (power seats), Inteva Products (instrument panel), Modine Manufacturing Co. (battery chiller), Sika (acoustic dampers), Stabilus (liftgate gas spring) and ZF Lenksysteme (power steering mechanism).[2] However, there are more suppliers not included in the list, but these are the most important ones.

·      Talking about the customers, we should analyze the “model-type” consumer of Tesla. Because the price of Tesla’s cars is quite high, the average consumer has to be wealthy and able to afford a high investment on a car. However, there has to be something else. In this link[3] there is a research that gives us the answer. In this marketing research directly from Tesla it was discovered that its consumers are likely to be “business executives and entrepreneurs who are city dwellers, tech-savvy and green-friendly… wealthy, early adopters in the upper to middle class.”

·      As a summarize of Tesla’s competitors, we should mention specially Volskwagen, Nio, BYD, Hyundai and Nissan. We saw in previous assignments that there some clear competitors, but there are also others that have relevance but not as much as these ones. There are so many competitors that they all have the challenge to adopt the best competitive advantage in order to obtain as many customers as possible, taking into account the services they offer and the price the customers are willing to pay for those services.

Finally, in case of complementors, we saw in the previous assignment that the petrol stations, the garages and the energy charges’ suppliers are the main ones in Tesla’s market. In different places these ones change, but they are more or less generally established almost everywhere, what really change is their prices. However, in every place these are factor to take into consideration when buying an electric car or a non-electric one.
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C5_M1

Perform a Five Forces Analysis for the industry in which competes the firm you are working with in this course. To do so, recall to the definitive definition you made of that industry according to your analysis in the previous chapter (assignment C4_M1).

To inspire your work, you may use the examples provided in this section’s contents on the application of the 5 Forces Framework to two sectors: the automotive industry in Spain, and the executive search services industry.

The fiver forces are: internal rivalry, entry, substitute and complementary products, supplier power and buyer power. Let us analyze step by step all of them considering our company’s sector, in this case, the industry of cars in Navarra.

Internal rivalry
It refers to the battling for share by firms within a market. In this force, it is key to analyze different factors.

Firstly, we have to take into consideration the degree of seller concentration of the market. In order to do so, the Herfindahl index and the 5-firm concentration ratio are really important. In our case, the Herfindahl index in 2017 is 0,048367 and in the same year the 5-firm concentration ratio is 0,3953. As we predicted in previous assignments, the concentration of this market is not very high.

The second factor that we should considerate is the rate of growth in the industry of cars in Navarra. In order to study this aspect, we have found the number of matriculated cars that were sold in Navarra between 2011 and 2019. The following chart shows us this information.
https://es.statista.com/estadisticas/812487/numero-anual-de-matriculaciones-de-automoviles-navarra/



As we can see, in average the number of cars has increased considerably. The sector tends to grow, although in 2019 seems to decrease a little. The important thing is that, in general terms, the sector is, in absolute numbers, more powerful than previous years, even if we are seeing a change of the direction again. We should wait until the results of 2020 are available, to see if the sector is still growing and 2019 is just an exception of this growth.

Another factor to consider is the significant cost differences among firms and the differentiation. In our sector this is very important, because there are very big differences between the brands of the cars. They are running their advantage differentiation in order to gain the popularity among the customers that they want. There are cars that are cheaper than other because they are “low-range” cars or they offer less services or products incorporated in the car. Because of this, there are huge differences between the costs of the car production between all the producers. However, in this case firms cannot believe that price reductions will generate substantial increases in market share, because there are a lot of differences between their products, they are not undifferentiated. There are lots of competitors, which make the situation of the market to be very competitive; but there is also a lot of differentiation between their products.

Other factors are important, such as lack of quick in adjusting the prices, or infrequent sales orders. This is very true in Tesla’s context. It is not very common to see sales on brands like Tesla or Audi, but sometimes it can be possible. It seems to be an unofficial agreement among the cars’ brands in order to stay in its price, because they focus on some particular customers and some particular necessities, so that the price is different for each brand and both, customers and companies, accept it.

The exit barriers are really high in this case. Producing a car takes a lot of infrastructure and high-qualified workers. This means that a company, once that is producing cars, will probably continue producing them, even if its numbers are not good, because the exit of the market will mean a higher loss to the numbers. The company will think on different options, such as lower prices, less quality, etc. before thinking on closing the production. As we have seen in several assignments, Tesla has a great infrastructure and lots of workers. This capital is very expensive, so that this means that the company has to amortize it during the years.

To sum up, although there are lots of industries and the competition is a reality, because of the competitive advantages of the companies the level of rivalry exists but up to a point.

Entry
In this case, we should mention that entrants divide market demand among more sellers, decrease market concentration and heat up internal rivalry.

As we discovered in past assignments, economies of scale are key in this sector. The infrastructure is very expensive and not only the capital but also the human factors are also expensive, because they have to be really qualified. This means that the entry is more difficult in terms of economies of scale. The company has to achieve an amount of production in order to survive with profit, otherwise the production is not going to be enough to cover the huge fixed-costs that are in this sector. This is directly related to the experience curve. Because of the way this experience curve behaves, the entries are going to be less likely to happen.

Another point that we have to analyze is the government protection of incumbents and the importance of reputation or established brand loyalties in purchase decision. In this case, we have to mention to pieces of information. Firstly, there are some “equality” laws for the industries that in 2007 were implanted in the 35,6% of the cases, while in 2008 were implemented in the 11% of the cases.[1] This means that the there is a lack of government effort to achieve this equality among the companies. Secondly, a very important factor in this market in Navarra is the presence of Volkswagen. This company is very important, not only in the car industry in Navarra, but also in the general industry in this Region. The problem for Tesla here is not only the presence of an important company well-known in the region, but the huge power that this company has in Navarra and in the rest of the world. However, this means that the entry is going to be more difficult to enter this market because the competitors are really powerful.

Volkswagen situation has also something to do with the consumers highly value reputation. For new entrances it can be very difficult in Navarra to stablish a good connection between the company and the consumers, because some of them can be more loyal the Volkswagen company or to others that are already implemented in the region. Being well-known can be very difficult with these huge competitors, it is not very expected from the inhabitants in Navarra to have lots of entries in this market, because they are used to think “cars in Navarra = Volkswagen”.

It is also important to consider the accessibility that the new companies can have to raw materials, distribution channels, technology and location. In this case, we can point out two important ideas. Related to the raw materials, the accessibility can be real if we see that there are lots of companies with these materials in the surroundings of Pamplona, the capital city of Navarra. TSF, a global company, is located in Orkoyen and it works with manufacturing, engineering and integral logistics[2]. This is just an example, but there are lots of them. Regarding the location, we should mention that a solar in Landaben, an industrial area in Navarra close to Pamplona, costs around 450.000€[3]. We can see again that the importance is not the lack of accessibility, but the huge investment that a new company has to do in order to enter in this market.

To sum up, the new entries do not seem to be very likely to happen, because of first the huge power of Volkswagen and second the huge investment that requires this market.

Substitutes and Complements
Substitutes behave the same way as entrants, because they steal business and intensify internal rivalry. On the contrary, complements boost the demand for the product and enhance profit opportunities for the industry.

Regarding the substitutes, we should focus on three main ways of transports: the train, the plane and the bus. The three of them have importance in Navarra. The train is run by a company called Renfe. This company is the only one that establishes the trains in the whole country, not only in Navarra, because is in part property of the government. The big station is located in San Jorge, a neighborhood in Pamplona, the capital city. It is possible to travel from the capital city to lots of cities around it and to the most important ones, such as Tafalla or Tudela. However, there are still difficulties to implement some fast trips in concrete villages or towns. There is still work to do in this topic from the government.

It does not seem such a really dangerous competitor, but it can be if the customers use both, the train and the bus. There are some buses that are cheaper than the train and, although the trip is longer, sometimes the people really need or want to use this bus because there are not trains available from the capital city to their towns. This happens a lot with students of the universities located in Pamplona. They may not afford a flat in the capital city, so every day they have to get both, a train and a bus, or just a bus, instead of using the car everyday. In these cases, the presence of these substitutes is really important.

The same happens with the public bus in the area of Pamplona, that are called villavesas. This way of transport is a substitute because every person is able to go from one point of Pamplona to the other one with a price that is affordable. These buses also go to other points around Pamplona, the “comarca”.

The last idea we have to mention about the substitutes is the presence of the airport in Noain, which is very close to Pamplona. However, because of the lack of several “lines”, there are not a lot of flights available and it is mainly in disuse. It does not present in Navarra such a huge substitute to the private car.

Regarding the complements, we can mention different aspects, but we are going to focus on the petrol and the energy suppliers for electric cars. Related to the petrol, in this webpage we can see in real time the price of the petrol: https://gasolinabarata.info/.It offers the cheapest prices in the whole country. Although there can be differences among the several regions in Spain related to general prices and wages, once you take a look on the website you see that the differences in petrol prices are insignificant. This means that the petrol can seem to be cheaper in Navarra compared to other products that are sold in Navarra. This is a good perspective to the cars’ market, because a complementary product that is very important is cheaper in terms of general prices; because Navarra is known as an expensive community to live.

If we focus this time in the energy suppliers, we can see that almost all of them are located in Pamplona. This is not a positive aspect to the electric cars, because this can be a motive for a person that lives in Navarra but not in Pamplona in order not to buy a electric car.



However, if we take a look carefully, we can see that 14 chargers are from Tesla.[4] This is good way to obtain profit from the complementary products.



Finally, we should mention in a complementary product that this time is a service and not a good, which are garages. This website https://www.antrv.com/index.php?m=asociados-60 allows us to know the number of garages that are available in Navarra. As we see in the picture, the number is considerably high, so there is not lack of accessibility in this case. However, it is true that in Navarra, garages are known to be quite expensive, so this can have a negative impact to our company.




Supplier power and buyer power
Supplier power takes the point of view of a downstream industry and examines whether that industry’s upstream input suppliers can negotiate prices that extract industry profits. On the contrary, buyer power refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers.

Firstly, we are going to focus on the bargaining power of buyers. Buyers are going to have less power where they are not concentrated (there is not a monopsony). In this market, it is common knowledge that the potential customers are not concentrated. There are several brands with several preferences and there as many customers as personalities human-beings have. This means that they are going to have huge power, so the price of the cars is not going to depend principally on what the customers want. The companies are not getting used to the customers’ preferences, but the other way around. The customers have to get used to the companies’ prices and decide which car they can afford or which one they want. It seems like a “take-it-or-leave-it” price.

Secondly, we are going to focus on the bargaining power of suppliers. Suppliers are less of a threat when sellers are not concentrated (there is no monopoly). In this market, it is common knowledge that the potential suppliers are not concentrated. There are several companies and brands with several types of inputs. We saw an example of a supplier before and like it, there are lots of them in Navarra and all over the country.
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