BUS7079 International Operations Strategy and Innovation

Introduction

Innovation and the need for innovation in the operations of international organisations have become major factors determining their success and competitiveness. Innovation in these companies is focused on enhancing their operational capabilities as well as product development strategies. In this context, the following report would shed light on Tesla and its international business operations focusing on various financial, resource and operational constraints that the company faces while trying to maximise its competitiveness using innovation. Adding to that, the study would also evaluate the current innovations utilised by Tesla in their international business operations and the issues that have come across. The report would examine the impact of these issues and develop an action plan, which can help to achieve resilient approaches in employing innovation and gaining a competitive edge in the market.

Evaluation of current innovative practices adopted by Tesla in their international operations

Artificial intelligence machine learning and efficient battery technology are some of the most innovative technology that Tesla utilises constantly in its vehicles. Tesla has constantly made major changes to its battery in order to ensure that the cost of these batteries is lower than the lithium and batteries installed by other electric vehicle manufacturers (Togasaki et al. 2022). Nevertheless, there is a substantial amount of environmental risk and lack of sustainability involved in the manufacture and development of these batteries. The batteries Tesla utilises are made of Cobalt and Nickle and these two elements have a significantly negative impact due to their mining process. Cobalt and Nickel are not only toxic elements but also tend to individuals involved in the mining process and in most cases, it is mined from Africa where a substantial amount of child labour is involved in the process (Muzayanha et al. 2019).

On one hand, Tesla is focusing on increasing its sustainability in the global market while on the other hand, its use of Cobalt and Nickel batteries are causing irreversible changes to the environment and the people involved in the supply chain. This is a major issue that the company needs to resolve as a part of operational constraints to ensure sustainability and a long-term presence in the market (Hwang and Stach, 2020).

Apart from that, machine learning is a constantly developing process as a result in the initial stages Tesla due to lack of data has shown issues in their autopilot and Power systems. Nevertheless, with more Tesla vehicles running on the roads collecting navigation data this issue would slowly diminish however this is a clear threat to the road safety of the users as well as other passengers (Kim et al. 2021).

Standardisation against adaptation strategy implemented by Tesla

Tesla is a global organisation that extensively focuses on the global standardization of its vehicles. The standardisation strategy adopted by the organisation has helped Tesla to ensure that all its products are the same across different markets (Lang et al. 2021). Even though there are minor changes in the software that the company uses, especially in terms of language settings. Apart from these adaptations, all vehicles are the same and standardised across the global market. This is part of a larger strategy that Tesla is focusing upon in order to install modular development and manufacturing.

Tesla extensively focuses on modular manufacturing techniques which have not only helped in increasing the production capacity of the Gigafactories it operates in different locations, especially in the US and China (Teichel and Hildermeier, 2018). Tesla operates its own network where the vehicles constantly upload navigation and map data in order to improve their existing autopilot technology and that utilisation artificial intelligence machine learning. With more data, the autopilot technology of Tesla is improving and is also making vehicles safer on roads. The largest strategy due to which standardisation is being adopted by Tesla is the implementation of the Starlink network. This aims to connect to the entire globe with the network of satellites offering free internet while also connecting all the tesla vehicles.

However one of the main issues that the company has been facing is the implementation of the sterling network as it is a time-consuming process and requires a lot of resources (Chamberlain and Al-Majeed, 2021). Not only that but there is a significant amount of scepticism linked with Tesla and the explanation of offering free internet to anyone across the world. This has also raised some data security issues where privacy of data can be at stake considering the fact that Tesla will be constantly collecting data from all the users to improve its machine learning capabilities. Even though the organisation has stated that any data that would be collected is only used for improving the machine learning capabilities and not to harm the privacy of The users, such data privacy issues from other global companies like Google have already attracted lawsuits in the recent past (Akakpo et al. 2019).

Additionally, Tesla has also seen a decline in sales of its vehicles in China while also facing difficulties entering the Indian market. The Indian government is unwilling to offer the organisation any subsidies for importing vehicles from its Chinese as a manufacturing plant (Serohi, 2021). India and China have been already involved in a conflict of cyber conflict and any product imported from China are thoroughly is scrutinized by the Indian authorities, as a result, there is also scepticism about Chinese-made Tesla vehicles. On the contrary, the Indian government has offered Tesla to set up a factory in India in order to be eligible for subsidies(Sivaraman, 2020). Nevertheless, Tesla sees it as a non-essential aspect of its market considering the fact that it has already developed and established a Gigafactory in China which is currently meeting the demand in the Asian market. Making another factory in India would lead to overproduction and use of resources leading to resource and financial constraints that the company might not need in the first place. Due to this, the company has not been able to enter the Indian market which has a high potential for growth and brand recognition in the Indian market (GS and LS, 2020).

Risks faced by Tesla in the past years

Technology innovation is considered as the most valuable activity of Tesla. Even the organisation has a strategy to invest a significant amount of capital in its research and development. Especially, in terms of high-performing EV batteries, self-driving technology, storage components, and energy generation, the company has been investing a huge amount of capital (Chen, 2022).

Figure 1: Research and development expenses of Tesla between 2010 and 2021

(Source: Chen, 2022)

In accordance with the study of Chen (2022), a strategic alliance made by Tesla positively impacted its technology innovation, competitiveness, and profitability; although potential challenges including the relationship crisis have occurred. For instance, Tesla has faced challenges regarding its over dependency on Panasonic, as the only supplier of lithium ion batteries, along with its relationship crisis with the supplier (Bridge and Faigen, 2022). Moreover, in past years, the organisation faced issues regarding a limitation in the production of its Model 3 vehicles due to the battery cell productions of Panasonic (Lambert, 2019).

The organisation has also faced challenges regarding the accusations of employees regarding working conditions at Tesla. For instance, employees at Tesla had to work for 40 hours in a week even including excessively mandatory overtime, which was criticised by employees (Inverse, 2017). However, Elon Musk feels that these kinds of accusations are influenced by the “United Auto Workers Union” and even he feels that Tesla became effective in this case. Factory workers at Tesla also revealed work stress, pain and injury because of working conditions at the organisation (Wong, 2017).

Apart from that, it is evident that the use of updated technology and a great focus on innovation has been influencing the international operations strategy of Tesla in a positive manner. However, findings reflect that the approach of this organisation in overestimating innovation and underestimating human resources is a serious production related problem for Tesla. For evidence, in 2018, Tesla was expected to produce approximately 5000 model 3 EVs every week, but it has failed even to manufacture the expected number (Büchel, 2018).

Impact of the risks on the organisation

Due to the impact of the relationship of Tesla with Panasonic and challenges regarding over dependency on Panasonic regarding lithium-ion batteries, the company has taken a move to make its own EV batteries (Lambert, 2019). This is indicating that the challenges regarding the supply of batteries influence them to embrace innovation in order to make its own EV batteries.

Due to the issue related to workplace conditions at Tesla and employee health, the organisational reputation of Tesla was decreased. To be more specific, because of this issue, the organisation was criticised significantly in news articles. It is evident that the organisation in its plants utilise robots that are called X Men, which is indicating its extensive growth in innovation that fosters its international business operations (Wong, 2017). However, the accusation of human workers regarding extensive pressure on them is linked with the aggressive manufacturing goals of Elon Musk, which was criticised significantly (Wong, 2017). Furthemore, the impact of the issue related to working conditions and employee health has eventually influenced the organisation to be focused on this aspect and enhance workers safety.

In terms of issues faced by Tesla due to over-estimating automation, Elon Musk has realised that humans are more adaptive to accept changes than artificial intelligence (Büchel, 2018). However, a great focus on automation and artificial intelligence impacted the number of employees at the organisation (Carlier, 2022).

Figure 2: Number of employees at Tesla

(Source: Carlier, 2022)

The number of employees at Tesla in the year 2019 decreased from the previous year and became 84,016, as reflected in the graph above (Carlier, 2022). On the other hand, in the decreased rate of employees during 2017, workers health related issues and working conditions issues at Tesla’s factories has also taken part.

Risks might be faced by Tesla in the future

Findings reflect that Elon Musk is investing some of Tesla’s cash in terms of digital currency. For evidence, the organisation has made approximately $1.5 billion investment worth approximately $2.48 billion in accordance with the surge in Bitcoin in the first quarter of 2021 (Finance, 2021). However, the exposure of Bitcoin related activities of Elon Musk that are related to organisational capital investment can be a risk to the company, because of Bitcoins volatility. The organisation has sold the large portion of its crypto currency (Ramage, 2022).

Apart from that, rising material cost can also be a reason for the challenging situation for Tesla. The organisation has already faced issues related to material shortage, which was influenced by the supply chain disruptions during the coronavirus pandemic. This issue is expected to influence the growth of this organisation in a negative manner in future (Finance, 2021). These kinds of issues faced by the organisation became the reason for concern among investors of Tesla, as they have the ability to slow down the growth of the organisation.

Role of innovation in the development of operational management in different cultural settings

In the current economic panorama, it is very important to have an innovative competitive advantage for an organisation in order to improve business competencies and organisational capabilities (Ali and Anwar, 2021). Thus, from the perspective of Tesla, it has been identified that Tesla has been focusing on different cultural settings with the help of the business model, organisational structure, leadership, customer centricity, clear vision, and openness. It is very different to operate in a home country and then in a host country; thus, Tesla, in terms of their Model S, has focused on fast charging sustainable batteries while encouraging extensive customer participation alongside at different marketplaces (Cao et al. 2021). Therefore, Tesla’s income grew to about $54 billion in  2021 with consumption dominated by the United States (Carlier, 2022). Tesla is making their green technology to be one of the extensive factors, which are helping them to improve the operation at different cultural nations and that is undoubtedly improving the market capitalisation of Tesla.

Figure 3: Market capitalisation of Tesla

(Source: Market Cap, 2022)

Concerning the factor of Tesla regarding innovation, Tidd and Besant’s theory of managing innovation can be taken into consideration, as the theory refers to ideas that consist of something new and different from that which is already existing (do Adro et al. 2022). From the model of Tidd and Besant, it has been identified that construction of ideas is more important than abstract fields. In relation to this, it has been discovered that Tesla has focused on improving their quality management with the help of innovation that is significantly improving their operational management in different cultural settings. As a result, Tesla delivered a number of 627,350 vehicles in the 1/3Q of 2021, which is an increase of more than 16% over 2020 sales of 2020 (Carlier, 2022). The production and capacity design has been supported with the help of investment standards and resources that supports in achieving the company to improve their productivity and organisational efficiency with energy solution corporation. Apart from this, in terms of operation management, Tesla focused on location strategy, as its operation manager utilised to have a global reach for example in Europe, United States and Asia (Thompson, 2018).

Figure 4: Tesla’s operating margin

(Source: Carlier, 2022)

Tesla has the basic components of electric products and automobiles at different locations and demographics, which has resulted in Tesla’s operating income being 19.2%, higher from 14.7% in the prior quarter as suggested in the figure above (Carlier, 2022). The company has their own galleries and key location, which helps the operation management approach to have a level of display and sales transactions with a specific layout design that helps in innovation and problem solving contribution.

Approaches of developing a culture of innovation and creativity

From the clear understanding of the above analysis, it has been identified that Tesla’s approach to innovation is about focusing on transforming the automotive industry while enduring lessons in terms of bringing new technology to the marketplace (Alghalith, 2018). Tesla has their strength in software and hardware architecture that helps in building a great ecosystem strategy and system level strategy in the corporation (Wolff et al. 2022). However, it has been discovered that the organisation has been facing a few issues such as their relation with other organisations, and underestimating human resources. Apart from this, there has been an issue of failed power systems and autopilot, silicon chips and others, which have remained constant barriers in terms of innovation and creativity (Wang and Peng, 2020).

In terms of improving the approach of culture in terms of innovation and creativity, it is very important to drive the organisational culture so that it can support the focus of creativity and innovation at a company-wide range (Bendak et al. 2022). Moreover, the key factor of creating a culture of innovation and creativity is the behaviour of the leader through which, the organisation can be able to reinforce values and basics, which can help the business to thrive while handling mistakes appropriately. For example, it has been determined that Elon Musk’s CEO approval numbers fell to 52% in 2018 from 90% of the prior year (Lambert, 2019). However, there has been an overestimation of innovation in Tesla while underestimating the human resource; thus, it is very important to understand the importance of people so that the organisation can have a desired behaviour with creative employees with an innovative mindset. It has been investigated that Tesla’s company’s overall score on the job site Glassdoor has dropped to 3.2 from 5.0 stars (Lambert, 2019).

Hence, from the overall understanding, it can be stated that Tesla should focus on employee collaboration and communication while offering them the chance of taking on new challenges that can help them in their professional development while building a sense of belonging. According to Glassdoor information, Tesla’s “recommend to a friend” rating tumbled to 49% during the 1Q from 71% (Lambert, 2019). Thus, Tesla should hire a diverse team along with reducing micromanaging and redefining the core values of the organisation. All of these might help Tesla to establish a culture of creativity as the company does not have that much drawback in terms of innovation. Moreover, Tesla should attentively focus on human resources, which might help the organisation to perform better with effectivity.

Action plan to mitigate the constraints identified above

Table 1: Action Plan

Conclusion

Based on the understanding, it can be stated that international operation strategy and innovation plays a very important role in improving the business organisation and productivity. In this connection, the evaluation of current innovative practices of Tesla has been identified where few issues have been justified such as the issue of silicon chips, losses in China, failed power system, autopilot and many others. However, acknowledgement of Tesla’s standardisation against adaptation strategy has been considered while followed by the risk and its potential impact on the company. The role of innovation in operational management at different cultural settings has been justified with the support of Tidd and Besant theory of managing innovation. Moreover, few approaches such as focusing on the requirement of communication and collaboration, technological improvement along with defining core values are being accessed successfully.

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