4 Business Diversification Business diversification implies establishing new

4 business diversification business diversification

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4. Business Diversification Business diversification implies establishing new businesses to reduce the company’s exposure to risk. With international expansion within the company’s sights, business diversification could greatly reduce the risks that the company might face in the global market. iv. Threats 1. Aggressive Competition The automotive industry is highly competitive. Other companies in the industry are increasingly venturing in the production of electric vehicles thereby threatening Tesla’s position. Hence, this presents a major threat for the company. 2. Difficulty in Funding Tesla projected that it will have to produce 500,000 units so as to expand. Given the limited cash at hand of around $1.5billion, it is very difficult to see how such cash can fund this immense production (Dalvagas, 2016). 3. Dealership Regulation To expand the supply chain, the company will have to include dealership services which could further drive up the prices of the vehicles. Even so, some states in the U.S such as Texas prohibit direct company sales requiring sales to go through dealerships (Kissinger, 2016). Similar restrictions might also be experienced in other countries.
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TESLA 11 4. Imitation Given the limited technology in production of Tesla’s vehicles, there is a high chance that other companies will try to copy Tesla’s outlook. This can degrade the company’s product in the market. F. Porter’s Five Force Model Porter’s five force model is a business tool developed by Michael Porter that is used to analyse the external environment of a business and the factors that can affect the a business’ profitability. This tool assist companies in knowing the competitiveness of their business environment and also helps in devising a strategy that supports profitability. Additionally, Porter identified five key factors that affect the competitiveness and profitability level that affects an industry (Porter, 2008). These factors include; competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entry. v. Model 1. Competitive Rivalry Competitive rivalry relates to the number of competitors as well as their strengths. This factor also compares the quality of the competitor’s products or services and compares them with that of the company in question. When the rivalry is intense, companies are supposed to attract new customers through high marketing campaigns or aggressive price cuts. Ideally, the rivalry becomes intense when; there are many competitors, low customer loyalty, slow or negative industry growth, equality in size among competitors, and produce are easily substituted with limited product differentiation (Porter, 2008). Contrarily, lack of intense rivalry implies that the company can enjoy healthy profits in the market.
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