THE INTERPLAY OF GOVERNMENT POLICY AND
CORPORATE STRATEGY: TESLA’S
PURSUIT OF INTERNATIONAL SUCCESS
By:
Assifa Winayu Prameswari (015202300023)
Khalishah Nakhwa Ramadani (015202300059)
Khansa Nur Sabrina (015202300028)
Ni Nyoman Selin Gitaswari (015202300032)
An Assignment Presented to The
Faculty of Business President University
Major in Business Administration
2025
1. Introduction
Multinational enterprises, while functioning under the principles of globalization, are faced
with a string of government-made regulations and policies concerning cross-border
commerce, which may, in turn, promote or restrict operational engendering (Liu et al., 2023).
This shows the understanding of how government interference yields international business
results and how businesses realign entrepreneurial intent in pursuit of understanding these
changes as they occur (Liu, 2024). The multi-factor influence that governments exercise over
international business success and rolls out in line with how businesses can wield strategic
adaptation towards the ever-changing regulatory environment is what this paper addresses
(Tong et al., 2018). Case study analysis will be used to exemplify how governments and/or
non-state actors may be put under pressure to alter resource endowments or innovation
trajectories by the dynamics of their negotiation. This will create a case for adaptive agility as
an important response to external pressures (Tong et al., 2018). Hence, this study considers
how much better a case might be made for the study of the relationship the government does
have with corporate success in internationalization through strategic governmental responses
to the advocacy of NGOs.
2. Theoretical Frameworks
2.1 Resource Based View
According to Barney's Resource-Based View, a firm attains a competitive edge through the
strategic utilization of resources that are valuable, rare, inimitable, and organized. The
government, therefore, assumes a role of importance in shaping a firm's resource mix through
providing strategic assets such as R & D grants, availability of land on preferential leases,
export financing, and so on, which can then be internalized by companies (Buonocore et al.,
2024). When integrated, these resources become a part of a firm's operations which then
create the route for efficiency, innovation, market position, and ultimately sustainable
competitive advantage.
The Resource-Based View denies that the competitive advantage comes from strategic use of
internal resources (Tong et al., 2018). In this connection, state grants may be regarded by
firms as strategic, valuable, rare, and inimitable assets to gain an advantage. A government
can facilitate the generation of unique competencies and superior performance in the
international marketplace through access to key resources and capabilities (Buonocore et al.,
2024). Such resources may be leveraged by firms to enhance their operational capabilities
and attain a competitive edge in the global market.
2.2 Institutional Theory
In North's conception, institutional theory distinguishes between those sets of formal rules
such as laws and regulations and so-called informal rules that together shape the behavior of
organizations. Firms operating in tight compliance regimes must, therefore, earn institutional
legitimacy so that they can survive in the long run (Dorobantu et al. 2016). This legitimacy is
earned by being compliant with societal norms and expectations and by progressively
working with the regulators to influence the environment in which they operate. DiMaggio
and Powell refer to the coercive, mimetic, and normative pressures that any organization
would face within its institutional environment (Zhang et al. 2017). Coercive pressures are
formal or informal demands put on an organization by other organizations that the company
depends on, along with general cultural expectations within society (Zhang et al. 2017). Why
such mimetic pressures, for they always come from an organization's tendency to mimic the
more progressive, legitimate or successful entities out there when an uncertainty is faced?
The normative pressures are those that an organization feels created from the
profession-based standards, values as well as beliefs that influence an institution's behavior
(Zhang et al., 2017). To appear legitimate and survive, thus, firms succumb to the
institutional pressures that would require the matching of their practices to the norms and
values of the day. Institutional pressures get companies to devote budget items in
development of supplier performance improvement to enhance social responsibility along the
supply chain (Zhang et al., 2017). Institutions deal with the rule-like formulation of social
expectations and norms about company operations or CSR performance (Zhang et al., 2017).
Through the passage of time, organizational cultures and values are developed and institution
theory illuminates the adopted organizational development competencies such as training,
empowerment and skill enhancement (Kabue & Kilika, 2016). According to institutional
theory, a firm can lack the resources required to create a source of sustainable competitive
advantage because these resources are owned by other firms and cannot be controlled by the
firm in need of them (Kabue & Kilika, 2016). Institutional theorists insist that for institutional
and social legitimacy to be achieved, there is a need for strict adherence to established
institutional norms (Tavares & Dias, 2018). Norm conforming organizations are rewarded
with increased legitimacy, resources, and survival capacities (Tate et al., 2011). Organizations
constructively design their value codes for consumption and other constituencies for
legitimacy (Grandy & Wicks, 2008). Concerning legitimacy, different organizations have to
conform to comprehensive rules and institutional scripts. This occurs when firms balance
well the pressures of competition and institutional legitimacy: conformity versus
differentiation.
2.3 Diffusion of Innovation
Diffusion theory has been adopted in a plethora of contexts, as pointed out in the work of
Rogers and endorsed in Giunipero & Eltantawy (2022). It indicates that the adoption of any
new innovation by an individual depends on certain determinants: (1) perceived relative
advantage, (2) compatibility, (3) complexity, (4) trialability, and (5) observability. Change in
purchasing and supply management outlay due to technology changes can be interpreted
additionally through innovation theory (Giunipero & Eltantawy, 2022).
It is within the model of Diffusion of Innovation that public financial inducements like
electric vehicle subsidies fit, also as incentives to hasten more diffusion of new technologies.
Innovation policies and regulations thus drive the exciting diffusion and adoption of new
technologies by means of establishing financial incentives and infrastructure support, and, on
the whole, creating a regulatory framework within which consumers and industries are likely
to adopt them. For example, policies offering subsidies, tax credits, or other forms of
financial incentives for purchasing electric vehicles, will end up significantly reducing
upfront cost barriers while making these technologies more available to a broader base of
consumers, thus accelerating market penetration and eventual mainstream uptake.
Moreover, government investments in networks for charging stations, research and
development, and standardization add greatly to the practicality and comfort of novel
technologies, and thus all aid to their diffusion through society. Using this model,
policymakers can purposely deploy a variety of policy instruments to trigger the uptake of
transformative technologies, consistent with larger economic, environmental and social
objectives. Most times, policymakers face the dilemma of "which comes first, the chicken or
the egg?" when dealing with infrastructure-dependent technologies (Brozynski & Leibowicz,
2021). Technology diffusion requires subsidies and infrastructure, which depend on one
another.
3. The Role of Government in Shaping Tesla's International Success
Government actions significantly determine the degree of success for certainly international
business ventures, especially in this techno-driven world of Tesla. In particular, government
regulations and policies significantly affect Tesla's international business success regarding
the adoption of its electric vehicles and sustainable energy initiatives (Gr, 1992).
Various policies have been implemented all over the world by governments, including tax
incentives, subsidies, and regulatory frameworks, which directly affect the demand for
electric vehicles and the feasibility of renewable energy projects (Johnsen & Caniato, n.d.).
Environmental regulations may hinder technological innovation in the Tesla marketplace
(Du, 2021). The capacity of Tesla to adjust itself to appropriating these government policies
for sustenance against competition is vital to its success. In China, for instance, funding for
new energy vehicles from the government has vastly assisted Tesla's penetration and growth
into the market (Du, 2021). As environmental protection awareness rises and restrictions
against traditional fuel vehicles gain momentum, many countries have begun formulating
policies to encourage the development of new energy vehicles such as purchase subsidies,
which in effect have bolstered the proliferation of the new energy vehicle industry (Tang,
2023).
There is plenty of evidence that monetary incentives are very effective when it comes to
instant results. Nevertheless, as technology enhances and the prices of EVs decrease, the
price gap between EVs and internal combustion engines will become smaller, thus requiring
the government subsidy priorities to shift from consumers towards manufacturers (Song &
Potoglou, 2020). Consumer incentives lowering the cost of ownership are paramount when
considering the effects of money incentives (Lutsey, 2015). Governments can also create
strict emission standards and fuel efficiency mandates, which force automakers to spend on
electric vehicle technology, thereby indirectly aiding companies such as Tesla (Zhang et al.,
2014). In developed markets such as China and Europe, there is a gradual withdrawal of
incentives for electric vehicles ("Global EV Outlook 2023," 2023). Additionally, the role of
government is considered critical in promoting innovation through the provision of R&D
grants, forming public-private partnerships, and setting industry standards. Also, they support
EV promotion by constructing the charging infrastructure network and backing battery
technology advancements.
These initiatives reduce the cost of owning electric vehicles and, in so doing, help alleviate
range anxiety, which is one of the major challenges to large-scale adoption (Zhang et al.,
2014). The more incentives provided by the government-to-the-public in a country, the higher
the proportion of EVs in that country (Rietmann & Lieven, 2018). In addition, government
investments in renewable energy infrastructure, such as solar and wind energy, complement
Tesla's goal of accelerating the world's transition to sustainable energy. In order to promote
EV adoption, governments need to invest in charging infrastructure and provide subsidies and
tax exemptions to electric vehicle owners. However, the EV market share is minimal
worldwide. Governments should encourage the use of electric vehicles, encourage carbon
emission reduction, and make a big difference for the environment. Another role that
governments should play is encouraging cooperation between businesses and government and
investors, exerting proper regulation to favor circular designs and models and supporting the
movement of valuable products through reuse, repair, and remanufacturing actions through
the lowering of tax rates (Rodríguez-Espinosa et al., 2023).
Trade agreements, intellectual property protection, and foreign investment laws are other
means through which governments influence business in the international arena. Perhaps the
unique ability of Tesla to maneuver within such complicated regulations and to leverage
government incentives has fast-tracked the firm's international expansion and market
leadership (Chen et al., 2023). Interested nations give incentives for consumers to favor
electric vehicles, such as rebates, income tax credits, and subsidies, to reduce the purchase
price and total cost of ownership, thereby making them more economically competitive
compared to traditional internal combustion engines (Lindsay & Emimal, 2023).
4. Tesla's Adaptive Strategies for Navigating Regulatory Environments
Tesla employs a proactive approach that involves approaching the government agencies,
convincing them to shape policies and regulations favoring its business purpose ("Global EV
Outlook 2023," 2023). Tesla was a master in pullbacking and posing its exhibit toward the
country's regulatory setups that led the way for the company to operate across several
countries (Goel et al., 2021). Through its participation in the various other policy discussions
and industry consultations, it can further influence the future standards and regulations which
will better suit electric vehicles and the sustainable energy solution (Tang, 2023). It does
require a heavy lobbying effort with governmental- and trade-related entities, which is a
major reason such companies enjoy much of the growth opportunities in heavily regulated or
monitored economies like China.
Effective strategies for market development could utilize the elements of the local business
environment. The establishment of the Tesla Gigafactory in Shanghai is a unique case in
which the company has worked with governmental authorities to create manufacturing plants
and establish a presence in local markets (Wu, 2023). The automotive maker entered China in
2013 and has since become one of the best-selling electric vehicle brands within the country.
The establishment of Tesla's brand in the Chinese market is very important in consolidating
its market position and exploiting the opportunities existing in the EV market (Chu, 2024).
Tesla's market entry strategy into China was a multi-pronged approach constituting celebrity
advertisement, collaborative marketing, and hunger campaigns. The marketing campaign was
designed to appeal to different market segments within the Chinese EV market (Chu, 2024).
Tesla's China entry strategy is one of the major contributing factors to the success of the
company in China. Effective marketing and branding strategies along with the favorable
policies and regulations enforced by the government of China have complemented the
success achieved by the company in China. This strategy made Tesla tap into the increasing
demand for electric vehicles present in the country and the government support and
incentives for local manufacturing (Gr, 1992). The Shanghai factory constitutes a strategic
and critical advantage for Tesla as it can lower production costs and avoid import tariffs, and
meet the needs of the Chinese market.
Tesla can access government resources, maneuver around institutional complexities, and
adapt its technologies to meet local demands. In addition, Tesla has the potential to access
many collaborating options that can yield win-win solutions with various governments due to
its approach to sustainability and environmental responsibility that fits into the policy
objectives of many governments. In addition, governmental agencies are managed in a
collaborative way by Tesla, especially in heavily regulated markets such as China. This will
help establish facilities for manufacturing and access local markets by the brand (Yao, 2022).
4.1 SWOT analysis For Tesla
4.1.1 Strengths
A strong brand recognition is one of the key strengths of Tesla as it is a market pioneer and
also an innovator in electric vehicles. Tesla has greatly marketed its name relying on
cutting-edge technology and advanced engineering, thus being able to create a significant
customer base that appreciates high-performance technologically sophisticated products
(Zhou, 2023). Besides, Tesla built a legacy of producing premium electric vehicles
considered symbols of luxury and a high level of technological sophistication. The
aforementioned strong brand identity and perception-that of being an innovative high-end
player in the electric vehicle market-are important competitive advantages of Tesla, hence its
success.
4.1.2 Weakness
Reliance on government incentives and subsidies proves to be one of the weaknesses of Tesla
as possible threats arise when such support becomes less or even cut off. The expensive
pricing of Tesla vehicles may prevent many consumers from purchasing them as affordability
is put off; thus, it limits its market share. Moreover, the small selection of products that Tesla
has offered to customers compared to its competitors would be a critical weakness that
creates a limitation to the wider spectrum of customer preference appeal that (Li, 2023)
discusses. In addition, the agreement that support primarily comes from the government is
where one of the challenges faces Tesla in the event that such policies change, while its
premium pricing could create a barrier towards some more consumers. Furthermore, the
company's comparatively narrow product model line reduces its potential to exploit the
market for electric vehicles more widely.
4.1.3 Opportunities
There is a lot of global demand for electric cars so this becomes much of an opportunity for
Tesla to expand itself in terms of market and further. The aforementioned opportunities may
in turn help much to draw enormous growth from Tesla as it optimistically exploits the good
demand for ecological transportation. Pursuit of such fully autonomous driving technology
may also revolutionize transportation and hold newer and different ones for revenue
generation(Shao et.al,.2021). In fact, development of self-driving capabilities will broaden
the business models and revenue streams for the company, such as autonomous ridesharing or
software licensing and the like.
4.1.4 Threats
The ever-growing list of fresh entrants, now facing competition from already-established
automakers, intensifies competition and exerts great pressure on Tesla's position in the market
(Liu, 2024). Such fluctuations in raw materials will be detrimental to Tesla, causing higher
costs of production and affecting their profit margin-any such event that could threaten the
finances of that company. The increase in competition from start-ups and legacy automakers
in a very lucrative electric vehicle market presents an even greater challenge for Tesla as it
has to compete against well-funded players with alternate technology and branding. On the
other hand, raw material price volatility tells us otherwise, the input prices that are largely
affecting the flexibility of the company's cost structure affecting at the same time the
profitability and competitive pricing of the entire battery-operated vehicle life cycle-the
vehicle-in the hands of Tesla.
4.2 PESTLE Analysis For Tesla
4.2.1 Political
Government policies and regulations can create an inflection point for the electric vehicle
market. They act as the determining incentives, set standards for emissions, and determine
trade policies that can sway the industry. More than that, political stability and deft trade
relations between countries is a good condition in which Tesla can manage its international
business operations and global supply chains comfortably. These government and
geopolitical factors are key in determining the possible success and growth of electric vehicle
manufacturers like Tesla as they maneuver through the rough waters of the global market.
4.2.2 Economic
Those economic conditions like the GDP growth rates, inflation rate, consumer confidence
and the fluctuation of the exchange rate are capable of manipulating the demand for electric
vehicles to a large extent as well as overall performance. Volatile currency exchange rates
pose an issue to Tesla because they might affect its operations in international markets, thus
possibly incurring a significant decrease in the company's profitability. Changes in exchange
rates serve to make the costs of importing components and materials relatively high,
influence the price of Tesla's vehicles on foreign markets, and inject some uncertainty into the
company's global supply chain as well as that of logistics. Therefore, Tesla needs to monitor
the economic trends and currency fluctuations closely to devise mechanisms that can help
reduce risks and use available opportunities for expanding its global business.
4.2.3 Social
Increasing demand for electric vehicles as a sustainable transportation option is attributed to
consumer awareness of and concern for environmental issues. Consumer preferences and
lifestyles, including desires for environmentally friendly mobility alternatives, are important
influences on widespread adoption of electric vehicles by consumers. Other factors, such as
range anxiety and charging infrastructure availability, are also becoming avenues of
consideration for these consumers by factors affecting the adoption of electric vehicles.
4.2.4 Technological
Continued improvement in technology related to the battery, charging infrastructures, and
autonomous driving are among the most important forces propelling innovation in the electric
vehicle market. The development and adoption of new, much more efficient manufacturing
processes can help Tesla improve production efficiency and reduce costs, enabling the firm to
be competitive in its expansion and make further inroads into the electric vehicle market.
Also, on the part of Tesla, the focus on state-of-the-art technological solutions including the
proprietary electric powertrain and advanced autonomous feature has been one prime factor
in penetrating the EV leadership.
4.2.5 Legal
Safety standards and regulations regarding electric vehicles, including battery safety, crash
testing, and environmental impact assessments, bear heavily on product development and
compliance requirements for Tesla. Intellectual property law and protection of patents are a
means for Tesla's technical innovations to withstand infringement from competitors, thereby
preserving the advantage of time on the market. In addition to emissions standards and
incentives for the development of renewables, environmental regulations and policies greatly
influence the demand and expansion of the electric vehicle industry in which Tesla operates.
4.2.6 Environmental
Electric vehicle policies and regulations encompass an array of trade issues, emission
standards, incentives, and subsidies, all affecting considerably the various facets of the
electric vehicle market. These governmental interventions mainly affect the operational and
supply chain environment of companies such as Tesla, whose business is dependent on the
regulatory environment and the geopolitical relationship between countries. The very resolve
with which Tesla manages international operations and supply chains therefore becomes
susceptible to the stability of trade relations and political environments between nations;
disruptions or uncertainties in these spheres would fundamentally hamper the company's
growth. As such, it is imperative for Tesla to understand and maneuver through the evolving
policy wetlands that affect the electric vehicle industry in order to keep its competitive
growing edge and sustain the same over the long haul within the global landscape. The
competition is very much intense in the market characterized by hybrid electric vehicles and
battery electric vehicles (Ingram, 2018).
Conclusion
Governments play an important role in international business through the provision of
resources, political and legal institutions, and the encouragement of innovation. In order to
gain legitimacy and eventually long-term survival under strict compliance systems, firms
have to develop strategies suitable for their currently existing legal and normative
environment (Allenbacher & Berg, 2023). Accordingly, government incentives in the form of
subsidies and tax credits promote technology uptake and market penetration (Salam, 2007).
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