AN INTERNATIONAL PROPOSAL FOR TEXLA ELECTRIC CAR MARKET ENTRY STRATEGIES/OPTIONS INTO NIGERIA ELITE MARKET

AN INTERNATIONAL PROPOSAL FOR TEXLA ELECTRIC CAR MARKET ENTRY STRATEGIES/OPTIONS INTO NIGERIA ELITE MARKET

 

INTRODUCTION

Recent developments in regulatory emission standards in the hope of restraining the threat of global warming, turbulence in oil prices, technology innovation and especially, enhanced customer and government interest in the green economy have brought a reviving interest in alternative power technologies. More precisely, after a long dormant period, current environmental concerns couples with the search for sustainability and most importantly the rise of new players heavily invested in the booming zero emission automotive sub-sector, have awakened incumbents, most of which showed a lagging situation in the electrified power technology knowledge and commercialization. In front of the contingence of being disrupted by new entrants or established competitors in an evolving market with strong growth potential, incumbents are being faced with a set of contrasting strategic decisions, which will determine their competitive future path.

 

In this context, automobile producers with a constrained budget have to make decisions on which technology to invest on and develop commercially, when to make grand entry in to markets and which entry strategies to adopt. Collaboration strategies must also be taken into consideration when analysing entry strategies as they entail the risk of losing precious proprietary technologies and knowledge on one side, but reduce the research and development time and costs in an uncertain environment (Nigeria) on the other side.

 

Hence strategic decisions will have strong implications for the future evolution of the industry and its players given technology’s strong path dependence caused by the self-reinforcing mechanisms which are characteristic of innovations distinguished by network externalities.

 

This proposal x-rays the Texla automaker’s entry strategies into the Nigeria elite market, the advantages and disadvantages of the available entry options/strategies to the Texla Electric Car Manufacturer.

The Tesla Electric Car Manufacturer

Tesla Motors is a major American manufacturer of renewable assets including solar panels and energy storage units. As of today, it represents the only startup to have reached worldwide success and a market penetration into the Nigeria elite automobile market. Even though consumer needs and government regulations are really changing towards a more environmentally friendly mentality, most of merits of the mainstream acceptance and excitement which currently linger have been attributed to Texla’s success execution of its disruptive mission.

 

Differently from what most established auto makers had tried to do, Texla did not point to the mass market directly, but instead tried to make electric cars. It focused on making its cars not just substitutes of fume exhaustive cars but exclusive cool cars which would have nothing to envy to their polluting counterparts. This was mainly done by demonstrating that electric cars can be sporty and fast, contrary to the common vision of them being slow as golf carts.

 

After the first model was released and the hype around it build a strong image for the company, Texla started its step by step strategy, increasing available models and product volumes and slowly lowering prices by refining its technologies. All these characteristics make Tesla a precursor of what the future of automobile industry could look like, giving it a clear first mover competitive advantage in the evolving future market.

Management of Technological Innovations

Innovation is, in its purest essence, knowledge – knowledge to solve our problems and pursue our goals (Simon, 1973).  Technological innovations, which enable firms to protect their margins against local and global competitions, have become the most important drivers of competitive success. In a world where the big global players have the funds to continuously launch to market new products, firms that do not pursue an innovation strategy find themselves quickly cut out and obsolete, with little margin for competition. In this Nigeria international business environment, non-innovative firms can heavily suffer from competence-destroying innovations and run out of business in a short time. This is particularly true for industrial firms, which are particularly technology-intensive and whose competitive advantage greatly depends on their products and processes. Being the first patent, Texla electric car can shift market power away from incumbents in the automobile industry, if the right market conditions exist.

 

NIGERIAN EXTERNAL BUSINESS ENVIRONMENT

Nigeria, officially called the Federal Republic of Nigeria, is almost twice the size of California, USA but over three times the size of the United Kingdom (UK). It occupies 15% of West Africa with its approximately 923768 sq. Km and is the most populous in Africa because it has over 56% of its people. Nigeria is also a popular black nation on earth and in the year 2009 the IMF (International Monetary Fund), ranked it as the third fastest-growing economy in the world after China and Indian. Nigeria is the largest country in West Africa, it sits on the Gulf of Guinea sandwiched to the north by Niger, the east by Cameroon and Chad, the west by the Republic of Benin and it boarders with Lake Chad from the northeast. Nigeria became independent from the British colonialism on the 1^st of October, 1960 and presently it has thirty-six states and the Federal Capital Territory (FCT). Abuja is the capital and also called FCT while Lagos was its former capital with a representation of over ninety percent of all the Nigerian tribes and also the most industrialised state hence some fondly refer to it as the commercial capital of Nigeria (Anegbu, 2015).

 

The Nigeria marketing environment is very complex, dynamic, multifaceted and exhibits ripple effects. A lot of factors operate at cross purposes in Nigeria. For example; many decisions that may lack rationality are made on a continuous basis; also various governmental and macro-economic policies which affect marketing are made and sometimes reversed almost instantly. An example is the situation that arose in 1998 in Nigeria when general Abubakar increased workers’ salaries and reversed it again stating that he was ill advised.

 

The major problems facing international marketing managers in Nigeria are to identify, understand and utilise the major elements of the Nigeria marketing environment when making strategic market entry decisions. Therefore, to be successful, international marketing firms must be able to understand the mechanics, elements, dynamics and functioning of the Nigerian marketing international environment. Also, they should realise that Nigeria is primarily a mixed economy nation i.e an economy which is a midway between a free market economy i.e capitalist and a pure planned economy i.e socialist (Isimoya, 1998).

 

The prevailing economic conditions in Nigeria offer a mixture of opportunities and threats to international marketing organizations. For example, the large population constitutes a potentially large domestic market that can sustain fairly large auto manufacturing plants like Texla. Also, the present oil resource base of the economy offers some opportunities to international marketers particularly those in the oil industry. For example, in the past, thanks to the then scarcity of petroleum, many people (fuel attendants, filing station managers, some military personnel etc), made thousands of Naira either through unduly high pricing of the item or through diversion of the product to neighbouring countries.

 

International marketers should realize that the situation then was temporary hence it is important for them to look ahead into the future and discover new resource bases of the economy and examine how changes in the resources base of the economy can affect their operations locally and internationally.  They should also be up-to-date with the governmental policy statements and development plans so as to be able to evaluate their possible impact on business operations. Furthermore, they should realise that the predominant high exchange rates of the Naira to the Dollars (N360-$1), as at the last quarter the year and some other foreign currencies may have contributed tremendously to the problem of low capacity utilization for local industries hence they should to source raw materials locally. Some foreign companies particularly in the oil and gas sector, are looking at new or expanded investments in Nigeria, and it is indeed Nigeria’s rich reserves that are keeping the economy afloat and are the key to the country’s future potential. However, the law and order problems in the Niger Delta, the nation’s major production area, and the Northern region with insecurity challenges, have caused concerned for intending international marketing firms. If the government fails to address these issues, the country could face yet another economy blow.

TEXLA ENTRY OPTIONS/STRATEGIES INTO NIGERIA ELITE MARKET

When an organization has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. One of the most important strategic decisions in international business is the mode of entering the foreign market.

A market entry strategy/option is the planned methods of delivering goods or services to a target market and distributing them there. Importing or exporting servicesrefers to establishing and managing contracts in a foreign country (Vineet, 2013). According to Vineet (2013),an organization willing to go to international market faces three major issues;

Marketing:

• Which countries to enter?
• Which segments to service?
• How to manage the segments and countries?
• How to enter the countries?
• What information is required?

Sourcing:

• Where to obtain products, make or buy.

Investment and control:

• Joint venturing,
• Global partnership or

The market entry strategy for an international business is primarily based upon a carefully thought out and executed market entry decision. These decisions also go a long way in influencing the firm’s other marketing mix decisions. As such, before delving into a given foreign market, companies normally face a variety of choices and decisions. As far as market entry is concerned, these choices and decisions encompass:

• Nature and expanse of the chosen market or product;
• Business objectives with special reference to the chosen market;
• Entry methodology or strategy;
• Entry timing;
• Availability of effective and efficient control systems.

The mode of entry, among others, stands out as being one of the most crucial significance. It encompasses decisions around market size and potential for growth, competition, government regulations, local infrastructure and risk factors (Efrat & Shoham, 2015; and Czinkota & Ronkainen, 2012).

The entry methodology or strategy as adopted by a specific business is essential for the success of the venture as by virtue of the sensitivity and scope of such decisions, the complete range of the business’s activities may be affected. These activities or factors mainly include: the products and services intended to be launched in the foreign market; the manufacturing or service related technology chosen to be employed in the foreign market; and the human resourceselected for the foreign venture.The importance of entry decisions is highlighted by two other interrelated facts, which include: the complexity and complication involved in changing an entry strategy once it is executed; and the resultant hesitation and reservation on part of businesses to opt for such a change. Hence, the entry decisions or strategies assume an added criticality for the success of the businesses in the foreign markets, especially once these international markets are dynamic and too competitive to allow strategic mistakes (Hollensen, 1991; Khanna&Palepu, 2013).

 

In addition to the above mentioned factors, it is pertinent to mention that an ideal or model market entry strategy cannot be clearly laid out. These strategies are unique to each business and are normally designed in perfect accordance with the overall business strategies and objectives. Moreover, the market entry strategies can vary in terms of both the businesses and markets i.e. different businesses can opt for similar or different market entry strategies for same or different foreign markets. Also, a business may choose to opt for different strategies in order to gain entry into different foreign markets (Doole & Lowe, 2012; and Gilligan & Hird, 2012).According to Petersen and Welch (2002), businesses also have the option of amalgamating various strategies or modes in order to develop or enter a particular foreign market.

The car industry is generally considered to be highly dynamic and volatile and attaches a lot of significance to brand names. The market is also highly competitive thereby displaying a variety of losers and winners in terms of huge losses and profits (Kotler, 2012). Considering such high stakes and intense competition, the marketing research being carried out prior to foreign expansion is also usually very elaborate and exhaustive.

 

Despite the optimism of having zero-emitting cars in not so distance years, how customer demand for alterative power is too low in Nigeria as the country fuel consumptions still on the high. Tesla is expected to revolutionize the market to reach its sales target for 2018 due to production upsurge and the will to penetrate African’s market through Nigeria. This should be supported by initial sales and will build market share exploiting the lower competitive environment. For this purpose, Tesla pursued a strong international strategy in such a way to expand its customer base and relative sales and pre-orders as much as possible. As the company decides to target Nigeria elite market, it has to determine the best mode of entry.  The proposed entry strategies or options for Texla Electric car are as follows:

1. Exporting
2. Licensing

• Joint venturing

1. Direct investment.

Each succeeding strategy involves more commitment, risk, control and profit potential (Kotler, 2003).

 

EXPORTING

The normal way to involve in international market is through export. This can be direct or indirect. But in both, the product (electric cars)will be produced in the country of exporter. In exporting, there is little or no change in the following:

• Identity of the product
• Product line
• The commitment
• The mission etc

 

Indirect exporting:

The commitment is less. The company do not need a direct contact in over sea.

Indirect exporting is less risky. The company only require the service of local agents in Nigeria. They have the knowhow to move the company products. Tesla will only have to pay them for the services. They hardly make mistakes.

This may be used by Tesla if the company is doing exporting for the first time by working through international marketing intermediaries like:

• Domestic–based export merchant
• Domestic–based export agent
• Cooperative Organisation
• Export Management Companies

Domestic based export merchant: They can buy the manufactured product (electric cars) and then sell them in Nigeria for profit

Domestic based export agent: They seek and negotiate purchases in Nigeria for a commission

Cooperative Organisation: They carry on exporting activities on behalf of several producers like Texla

Export Management Companies: They can agree to manage Texla export activities in Nigeria for a fee.

Advantages

• Indirect export involves less investment; this is because Texla does not have to set up or develop an export department, use overseas sales force or a set of overseas or international contacts. Therefore Tesla will not need to invest directly in Nigeria by setting up assembly and manufacturing plant in Nigeria.
• It involves less risk; apart from the reduction in investment, Texla will operate with lesser risk since manufacturing will be done in the US and not in Nigeria. Under this arrangement, Tesla will need to enter an agreement with international middlemen in Nigeria who will take care of other activities on behalf of Tesla.
• It makes the company understand the local economy and culture before venturing.

Direct Exporting: Tesla may decide to handle its export directly, and may be approached by Nigerian-based buyers. Tesla can carry out direct exporting in several ways through the use of:

• Domestic–based export department/division
• Overseas sales branch or subsidiary
• Travelling export sales representative
• Foreign (Nigerian) based distributors or agents

Domestic-based export department/division: This involves setting up export department by Tesla. This is done by recruiting people who have expertise or know– how in export marketing. This might evolve from a purely self service function into a self-contained export department operating as its own profit centre.

Overseas sales branch or subsidiary: The sales branch handles sales and distribution and perhaps warehousing and promotion. It often serves as a display and customer service centre. This involves setting up a sales branch office in Nigeria for selling, promoting and distributing Tesla electric cars. The major advantage of having a sales branch in Nigeria is for Tesla to have a presence in Nigeria.

Travelling export sales representative:This involves home-based sales representatives travelling regularly to Nigeria to find profitable businesses

Foreign–based distributors or agents: The distributors and agents can old limited or exclusive rights to represent Tesla in Nigeria. The foreign based merchants don’t takephysical possession but they receive commission for their services while the distributors will take possession of products, promote it and sell the electric cars for profit.

Exporting to Nigeria involves obtain proforma invoice, contact shipping agents that take the product to the warehouse where it is tested to determine the quality. Once certified and satisfied, the shipping documents and bill of landing will be arranged. It involves a lot of processes: exporter or importers contact corresponding banks for payments and settlements of bills.

Advantages

• It gives the exporting company an international presence
• It is used as a parameter to test product acceptability in international market.

Tesla like many other companies can use direct or indirect exporting as a way to ‘test the waters’ or a low key entry strategy before making large investment like building a plant and manufacturing cars over-seas.

LICENSING

Licensing is an entering strategy for manufacturers. It is a simple way to become involved in international marketing. The licensor issues a license to a foreign company to use a manufacturing process, trademark, patent, trade secret or other items of value for a fee or royalty (Kotler, 2003). The licensor gains entry at little risk; the licensee gains production expertise or a well-known product or brand name.

Disadvantages

• The licensor has less control over the licensee than it does over its own production and sales facilities.

-If the licensee is very successful, the firm (Texla) has created a competitorand         given up profits. To avoid this, licensor (Texla) must supply some parts of the           electric cars. But the best is for the licensor (Texla) to be more innovative such   that the licensee will continue to depend on the licensor (Texla).

Licensing has several variations:

1. Management contract.
2. Contract manufacturing.

The best fit for Tesla is contract manufacturing. Tesla will hire local manufacturers to produce the electric cars.

JOINT VENTURING

 

Foreign investors may join with local investors to create a Joint Ventures Company in which they share ownership and control. A joint venture may be necessary for economic or political reasons. The foreign firm might lack the financial, physical and managerial resources to undertake the venture alone, or the foreign government might require joint ownership as a condition for entry. Corporate giants might needs joint ventures to crack the toughest markets.

Disadvantages

• The partners might disagree over investment, marketing or other policies. One partner might want to reinvest earnings for growth and other partner might want to declare more dividends.
• It might prevent a multinational company like Tesla from carrying out specific marketing policies on a worldwide basis.

DIRECT INVESTMENT

This the biggest form of investment in international marketing and it is also a good way of investment in foreign market through direct ownership of plant based facilities. The foreign company (Texla) can build its own facilities or buy a part in a local company. For instance, General Motors has invested billions in auto manufacturers around the world such as Shagain, Fiat Auto Holdings and Suzuki. Tesla can emulate this strategy.

Advantages

• The firm secures cost economies in the form of cheaper labour or raw materials.
• Foreign government investment incentives, freight savings.
• The firm strengthens its image in the host country because it creates jobs in the local market.
• The firm develop relationship with government, customers, local suppliers and distributors.

Disadvantages

• The firm (Texla) will expose itself to the risk of blocked or devalued currencies, worsening market. The firm will find it expensive to reduce or close down its operations because the host country might require substantial severance payment to the employee.

However, before Tesla can adopt this option or strategy, Texla must:

• Understand the country (Nigeria) and other external factors affecting business in Nigeria
• Understand the product (electric car) very well
• Ensure the electric car has been fully established before doing direct investment
• Ensure it has done sufficient export into Nigeria

CHALLENGES OF ELECTRIC CARS IN NIGERIA

Electric automotive development is likely to face the following challenges in Nigeria;

• Unstable and erratic electricity supply in Nigeria,
• Less government investment in infrastructures
• Unfavourable business environment,
• Likely change in government or government ideology

Unstable and erratic electricity supply in Nigeria: electricity supply in Nigeria is not stable and this instability can affect the acceptability and marketability of electric cars in a country like Nigeria

Less government investment in infrastructures: Nigerian government do not invest on infrastructural facilities, hence the poor state of such facilities in Nigeria. Therefore, those electric cars may be easily damaged by the rough roads in the country compared to developed or other developing countries.

Unfavourable business environment: Nigerian business environment is not so stable or favourable legally, economically, politically and technologically. This may therefore pose serious challenges on Tesla electric cars.

Likely change in government or government ideology: Nigerian government does not promote continuity in policies, orientations, ideologies, etc which can affect Tesla and/or electric cars sales in Nigeria

Threats to Consider when Entering a Market

Threat of Entry A growing industry often faces threat of new entrants that can alter the competitive environment. There may, however be a number of barriers to entry. Potential competition tenor to be high if the industry is profitable or critical, entry barriers are low and expected.

The following are some of the important common entry barriers:

1. Government Policy: In many cases government policy and regulation are important entry barriers. For example, prior to the economic liberalization in India, government dictated entry barriers were rampant, like reservation. of industries products for public sector and small scale sector, industrial licensing, regulations under MRTP Act, import restrictions, restrictions on foreign capital and technology etc.
2. Economies of Scale: Economies of scale can deter entry in two ways: it keeps out small players and discourages even potentially large players because of the risk of large stakes.
3. Cost Disadvantages Independent of Scale: Entry barrier may also arise from the cost advantages, besides that of economies of scale, enjoyed by the established firms which cannot be replicated by new firms, such as proprietary product technology, learning or experience curve, favorable access to raw materials, favorable location, government subsides etc.
4. Product Differentiation: Product differentiation characterized by brand image, customer loyalty, product attributes etc. may form an entry barrier forcing new entrants to spend heavily to overcome this barrier.
5. Monopoly Elements: Proprietary product / technology, monopolization / effective control over raw material -supplies, distribution channels etc. are entry barriers which are insurmountable or difficult to overcome.
6. Capital Requirements: High capital intensive nature of the industry is an entry barrier to small firms. Further, the risk of huge investment could be a discouraging factor even for other firms.

Rivalry among Existing Competitors

Rivalry among existing competitors is often the most conspicuous of the competitions. Firms in an industry are “mutually- dependent” – competitive moves of a firm usually affects others and may be retaliated. Common competitive actions include price changes, promotional measures, customer service, warranties, product improvements, new product introductions, channel promotion etc. There are a number of factors, which influence the intensity of rivalry. These include:

1. Number of Firms and their Relative Market Share, Strengths etc.: Rivalry is likely to be affected by the number firms, their relative market shares, competitive strengths, etc.
2. State of Growth of Industry: In stagnant, declining and, to some extent, slow growth industries a firm is able to increase its sales only by increasing its market share, i.e., at the expense of others.
3. Fixed or Storage Costs: When the fixed or storage costs are very high, firms are provoked to take measures to increase sales for improving capacity utilization or reducing storage costs.
4. Indivisibility of Capacity Augmentation: Where there are economies of scale, capacity increases would be in large blocks necessitating, in many cases, efforts to increase sales to achieve capacity utilization norms.
5. Product Standardization and Switching Costs: When the product of different firms is standardized, price, distribution, after-sales service, credit etc. become important strategic variables of competition. Absence of switching costs makes firms more vulnerable.
6. Strategic Stake: Rivalry in an industry becomes more volatile if a number of firms have high stakes in achieving success there. For example, a firm which regards a particular industry as its core business will give great importance to success in that industry.
7. Exit Barrier: High exist barriers. (For example, compensation for labor, emotion! attachment to the industry etc.) tend to keep firms competing in an industry even thou~ the industry is not very attractive.
8. Diverse Competitors: Rivalry becomes more complex and unpredictable when competition are very diverse in their strategies, origins, personalities, relationships to their parents etc
9. Switching Costs: In some cases a barrier to entry is created key switching costs (i.e., on time costs facing the buyer of switching from one supplier’s product to another’s) such as cost of retraining the employees, cost of new ancillary equipment etc.
10. Expected Retaliation: The potential entrants’ expectations about the reactions of the existing competitors may also sometimes deter entry.

RECOMMENDATIONS

Inspite of the challenges identified above, electric cars can be embraced and accepted by Nigerians in the light of the following recommendations:

• Tesla can build strategic plans to prepare for disruptive nature of electricity and be ahead of competition by taking steps to shape the electricity challenge by investing in solar power. To do this, Texla need to closely follow market trends regarding enabling technologies and business model evolutions.
• Tesla can adopt a penetration pricing strategy to penetrate Nigerian market by launching the cars with low prices. The population size will make the strategy to be viable and most people will want to save cost of fuel.
• Tesla can also take advantage of the economic situation in Nigeria by introducing credit which may come in form of hire purchase, lease agreement, payment by instalments, etc to lure or convince people to try the product.

Conclusion

International marketers are faced with quite many and quite a range of factors in the international business environment that can have profound effects on their marketing activities. They need to be aware of the main sources of culture, such as religion, language, education, values and attitudes, aesthetics, and customs and manners. Given that they are embedded into societies and individuals it is necessary for TEXLA to adapt their marketing activities to the market and not force a different standpoint on the consumer. International marketer like TEXLA also need to consider economical factors, such as population, income, inflation, economic integrations and infrastructure. They allow them to assess the attractiveness of the market and identify the segments and the geographical areas they should target. This reduces the risk of investing money in marketing activities in markets that are unprofitable. Finally, companies need to take into account the legal and political factors affecting the home country, the host country, as well as the overall international business environment. They need to be aware of the different governments, their political actions, their stability, and their relation with other countries, and constantly monitor them by keeping up to date with economic affairs around the world. This allows them to determine the level of political risk so that they can anticipate and plan for threats and take advantage of opportunities political changes offer them.

 

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