Analysis for Teslas Expansion into Russia

Analysis for Teslas Expansion into Russia listen of abbreviationsMEDCs More scotch exclusivelyy Developed CountriesNIC Newly Industrialized Country enlistment Ruble palatopharyngoplasty* Public- secluded Partnership GDP Gross Domestic Product PPP acquire Power ParityFDI Foreign Direct confidementOECD Organisation for Economic Co-operation andDevelopmentEV Electric VehicleWTO orbit Trade OrganizationIMF International Monetary FundBRICS emerging national economies Brazil, Russia,India, China and s stunnedh Africa.Letter of Recomendation to the CEOToElon MuskCEOof Tesla, IncReport on Russian fusionas a potency new grocery store for Tesla, Inc. on that point is no doubt that eco-friendlyvehicles will dominate a orbiculate railway car commercializeplace in the future. Telsa already positively presented in almost MEDC countries and now is a time to think aboutTransition economies (including NICs). The electric car commercialize in Russia is salve quite small onl y if thanks to brace economy and sensible g overnmentpolicies thither is a good effectiveness to expand it. The ability to set up ourdealership chain relatively quickly must be a consideration. Lack of chargingfacilities could be seen as a potential to insert and expand originalTesla Supercharger chain crosswise the sylvan and could lead to PPP*agreement between the politics and course where Tesla could take part notonly in the creation of those facilities hardly also in the further operations ofit.As our research shows, Russia has ahuge domestic trade which has a potential to expand and thread to a greater extent wealthy, whatmeans potentially a big client base. There atomic number 18 many state deport programs much(prenominal) as (First Car, Family Car, Private Business, and worldly concern city electrictransport) with financing of 17.4bn RUB, subsidies given to Russian referenceorganisations for the reimbursement of a shortfallin income from credits granted byRussia n credit organisations in 20152016 to individuals for the purchase of cars (7.0bn RUB) and early(a) analogous programs. (PwC, 2017)Conditions for investing rightfield noware perfect if Tesla wants to have a dominant federal agency in that market inupcoming long time. However, its of import to considerall the risks and to understand that factors such as movements in the exchangerate of the ruble, entre to auto loans, interest rates, amount and exerciseiveness of government support and involution of transport infrastructurewill predetermine demand more(prenominal) than anything else. originationThis report will advise CEO of Tesla Inc on whether to expand their ex officio stores into the Russian market. Currently, Tesla has its official stores in 28 countries including most of a westerly Europe, UAE, China, Taiwan, Australia and other and some other MEDC countries. (Tesla, 2017) The aim of this report is to understand and cerebrate how perspective Russian market can be for the expansion of Tesla. By using PEST, doorkeepers 5 Forces model analysis and SWOT we were able to precis advantages and disadvantages of investing in the Russian market with a more in-depth analysis on the relevance of bargaining federal agency of buyers, rivalry among existing companies, political and stinting factors. PEST AnalysisRussia is the biggest country in the realism in terms of area (CIA, 2017a) and 9th in terms of population with over 142 million people living in that respect. (CIA, 2017b) Despite all of its huge economicpotential, in recent years Russia has suffered an economic recession collectable tosanctions which were implemented by the US government on March 6, 2014 after anannexation of Crimea by Russian military squelchfulnesss. (U.S. Department of state, 2017) However recently situation inRussian started to improve and now in that respect is a positive purport in its economicgrowth which is anticipate to be at the train of 1.8% in 2019. (The ear th hope, 2017) (P)olitical Factors Russian was the largest country to emerge from collapsed Soviet Federal inDecember 1991 (CIA, 2017c) and went finished the 90s with two Chechen Warsfrom 11th of kinsfolk 1994 to May of 2000 but even so, the active phase of thewar was over there stillness was a high aim of tension in the region and Russiancounter-terrorism operation officially finished only in April 2009.(Al Jazeera media network, 2014) However, since then there were nomajor conflicts within a country and regions such a Chechnya seen much of aneconomic growth and government perceptual constancy in general imputable to massive cash injectionsfrom Russias federalgovernment which were aimed at stabilizingrecently unstable territory. (Financial Times, 2015)The Russian Federation forthwith stands as one of the most powerful andinfluential states in the world and and it keeps diplomatic relations with 191countries and has 144 embassies around the world.(ICD honorary society for c ultural diplomacy, 2014) presidential term type is known asSemi-presidential federation which is also called a managed land due to a high level of Government intervention. (CIA, 2017d)Corruption Perceptions major power research from 2016 suggests that there isstill a very high level of corruption in Russia with the score of 29/100 whatranks it 131st out of 176 countries studied.( hydrofoil International,2016)(E)conomic factorsRussia is sixth country in the world in terms of GDP and PPP which is anindicator of a strong economy and prospective market. ( creation till, 2017). Its economy mainly dependent onnatural resources such as oil and be adrift as they make up a huge part of Russianfederal budget revenue. For eccentric, in 2016 this figure was equivalent to 36%which were do up of mineral extraction taxes and export customs duties on vegetable oil oil and gas. (The U.S. nil Information Administration, 2017) There is a positive leaning in Russian economy today after a agree ofyears of recession which was ca partd by westbound sanctions and drop of oilprices. (WorldBank 2017)Inflation significantly went down from 15.5% in 2015 to 7.1% in 2016 and isprojected to clutch the target level of 4% in 2018 and monetary policy is plumbalanced with the current inflation rate. These improvements lead to a bettereconomic environment in general which caused a positive chain effect in abanking sector and improved terms of trade. (World Bank, 2017) An illustrative example ofimproving Economic environment in Russia is the fact that in 2015 the deem ofFDI project grew by 61% in comparison with a introductory two years. (Invest inRussia Russian investmentagency, 2016) (S)ocial factors Russian society went through a huge transformation after a collapse of aSoviet regime and has turned from autocratic structure society to moredemocratic one. There are nearly 200 national pagan groups represented inRussias 2010 census which makes it one of the most multicultural soc ieties inthe world. (Cia,2017e) Income inequality remains one of the big problems in Russian society.Gini mightiness of Russia in 2015 was 37.7which is much better than 46.1 back in 1996, however it is still very high incomparison with most western MEDC countries. (The World Bank, 2017). Russian society has some strengths and weaknesses against OECD countries, however, in recent years there was a significant progress in bringing up a quality of live standards. The table below represents a comparison of medium scores of OECDs and partner countries in some recognise social aspects. (T)echnological Factors Russia is a country with a rich history of scientific and technologicaltraditions. The mid- ball clubties crisis caused by the collapse of the Soviet regime led to thesignificant diminution of the government support for science andtechnology. Many Russian scientists wentto the United States or Europe in the so-called brain-drain migration. In the 2000s, on the wave of a new econ omic boom, the situation hasstarted to improve, and the government launched a campaign which was aimed atinnovation and modernisation. Current priorities for the Russiastechnological/scientific discipline include things such as energy efficiency,IT, nu attract energy and pharmaceuticals. (Sputnik,2009) (Time, 2011) Also, due to western sanctions, Russia started to decoct on replacementof foreign technologies and raw materials by domestic ones. This has worked asa push factor towards more develompment and reserch in some key sectors such asIT and energy.In September 2017 Russian President Vladimir Putin reminded of that dodging in meeting with Russian technology producers where he said that, insome spheres, state institutions could not work with companies running foreign software package because that represented a risk for national cyber-security. (CNBC, 2017)Porters Five Forces Analysis securities industry defenition Our analysis focuses on the new passenger cars market inRussia, curiously on electric/ crossbreed piece. Passenger cars are defined asvehicles with at least four wheels, used for the transportation of passengersfrom point A to point B, and consisting maximum of eight seats not includingdrivers seat. The Russian car market in 2016 decreased by 11% but it isexpected to come back to moderate growth from the end of 2017 due to a positivetrend in the Russian economy. (Automotive statistics ltd,2017a)Competitionin the industry The electric car market in Russia is relatively small in comparison with many MEDCcountries, however, it is predicted to grow. There are 1,100 electric cars inRussia but most of them presented only by a few dominant models Nissan foliage 508 units,Mitsubishi i-MiEV 271 units and Tesla Model-S 181 units. (Automotivestatistics ltd,2017b)As we can see there is a high engrossment ratio in theElectric car market in Russia as 89% of the cars are from top three firms inthe market and Tesla already one of this three companies with a market share of19% which is still quite a high number considering the fact that they donthave their official dealership in Russia yet. Potentialof new entrantsThe decree which allows standard gaseous state post to operatecharges for electric cars was signed in autumn 2015 and took force on November1, 2016. Russian charging infrastructure is expanding. PJSC RussianGrids already operates 130 charging place across Russia and by the endof December 2017 this number expected to ascend up to 2017 and up to 1000 by theend of 2018.(Eurasia network, 2017)As there is a constant growth in a number of chargingstations in Russia it could stimulate demand for electric cars and make themeven more attractive therefore attract new entrants into the market.There are not many potential companies who could offer anelectric car of a similar quality as Tesla right now, however, there are manyhybrid options out there which are potential rivals and could easily enter themarket as entry barriers are ge tting lower and lower with more Governmentincentives being introduced and new charging stations being built. Also, there are some big companies who are already lookinginto expanding into Russian market as well, such as Renault-Nissan coalitionwhich is now the leader of the global EV market. (Eurasia network, 2017) (Bertel Schmitt, 2017) Powerof suppliers In our report, we are looking for a potential expansion ofTesla dealership centres and not manufacturing sites. Therefore the power ofsuppliers is not important as cars and all needed materials for its maintenancewill be merchandise by existing supply routes like in many other cases where Teslaoperates. Powerof customers When considering an expansion into a Russian market, Teslashould have a clear understanding of what are the trends in consumer incomes,availability of car loans and perspectives of consumer confidence.Within nine months of 2017, there were 66 Telsa cars sold inRussia which represents a 92% overdress in comparison to previous year. (Russianautomotive news, 2017a) Demand is likely to elevator further and Teslaspotential client base could increase enormously due to an amendment to the taxcode which is discussed in State Duma right now. The idea proposed is to exoneratetransport tax for electric vehicles from 2018 onwards. (Russianautomotive news, 2017b) Bargaining power of buyers would be low, as Tesla in Russiawould be considered as high-end product particularly due to a lowaverage income in Russia (37500RUB=650USD) comparing to most western countries.(Tradingeconomics,2017) Also,Tesla is one of the most advanced electro cars in the global market, thereforethere are not many potential substitutions to it in that market piece whatmakes it quite a unique product and allows Telsa to have some power over itsexisting and potential client base in nearest future. Threatof substitutesThe main substitutes for electric cars, of course, would beconsidered standard petrol vehicles or a market of used c ars. Especially usedcar segment seems to be the most promising one in upcoming years due to theaverage length of car ownership declining thanks to the retrieval from therecent economic crisis. (Invest in Russia, 2017a) Some may consider public transport such as trains, buses,public bicycles or even planes as an alternative to electric/petrol cars.However Michael E. Porters commentary of a substitute is A substituteperforms the same or a similar function as an industrys product by a differentmeans. (Porter, 2008) Therefore we can say that mostof those wont be considered as substitutes because they are unable to fulfilsuch key passenger car features such as representing social status, providingcomfort, adjacent availability, independence of destination choice andflexible route change, what makes their substituting force pretty low.Nevertheless, a used car segment is more or less capable of performing most ofthe functions listed above. 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