Paper: MBA2303 Corporate Strategy and Global Business Policy Date turned in: Apr.12 2010
Exam questions
1) What strategies should a technology driven corporation like REC follow in its
entrepreneur phase?
REC’s development timeline [1]
Fir stly, we could learn from REC’s development phase.
REC was established on December 3, 1996 and has
since grown rapidly and is today one of the world
leaders in the solar energy industry.
REC’s development stages:
● Start from multicrystalline Wafer as the leading
technology in the PV industry
● Vertical expansion to the whole industry chain
● Going public onto the Oslo Stock Exchange
●
Profitable growth and cost reduction together with
the technology innovation ● Further expansion by building a world-scale,
integrated solar energy complex in Singapore.
So for a technology driven corporation like REC in its
entrepreneur phase, could adopt a three-pronged
strategy to achieve success.
They are:
Cost Reduction
Growth & Expansion Technology Innovation
1. Growth and Expansion Strategy
The growth strategies could include:
●Production and capacity expansion
●Vertical expansion covering both the up stream and down stream products
●Market and geographic expansion
●One stop shop solution expansion
The company should expand the production and capacity to get survival under the good industry environment with the government policy support and positive market drivers.
To support the production and capacity, the company should also consider the vertical integration to ensure the feedstock supply and also expand the market and customer base. In the end, according to the market requirements and economies of scale, the company could take further expansion on integrated approaches, or one stop shop solutions.
2. Technology Innovation Strategy
Technology innovation is very important as the industry is technology-driven, the company should keep spending on R&D on innovative technology development.
In solar PV industry, the technology innovation is the core competence of REC to keep its competitive position. REC has introduced a series of innovations to the industry, and continued to build on a strong IPR portfolio counting around 60 patents granted and close to 150 patents pending, which covers REC’s production technologies across the whole value chain. And REC has also invested 3 new technology centers.[2]
3. Cost Reduction Strategy
The company should take the cost reduction strategy through a combination of technology improvement and scale of economics brought about by increased productivity. REC expansion strategy goes together with the cost reduction strategy which keeps its market leader position. REC’s cost road map targets a reduction in the production cost per watt of almost 50% from 2005 to 2010, when comparing 'best plant' in 2010 with 'world-class' 2005 production.[1]
2) What strategies should REC use to capture a substantial market share in the rapidly emerging Chinese market for solar energy?
Before we get to the strategies, we need to first look at the industry overview the industry competitive analysis in China.
Industry Overview
Drivers:
●Solar photovoltaic (PV) is the world’s fastest growing energy source.
●Over the past five years, demand growth of solar PV has been in excess of 50%. In
2008, there was a growth in installations of more than 100 percent.[3]
●Less than 0.01 percent of the global primary energy demand is currently met by PV, so
future growth is expected to be tremendous.[3]
●In 2008, the Global Photovoltaic market reached 5.6 GW and the cumulative PV power
installed totaled almost 16 GW with a CAGR 34%. [3]
●There are continuous advancements in technology and cost down trend. More shifts
from R&D to large scale production.
●Apart from the general shift from R&D toward production, production itself is increasing
multi-fold. Manufacturers are increasing their production capacities in an effort to reap
efficiencies of scale.
●The industry is highly driven by the government policies including subsidies and other
incentives.
Barriers:
●PV industry has also been affected by the economic recession, which may result the
less funding for PV projects.
●Oversupply and Demand Slump: in many regions and China, manufactures have
added capacity to get the economics of scale, but when demand is decreasing, the
oversupply will cause problems.
●Raw materials shortages have affected the PV market often. In the future, the
availability of raw material may affect the market and industry.
●Despite the long-term promising future because of energy shortage, there’s still
uncertainty for the industry in the coming years, because of the industry standards, cost competitiveness, market scale and other energy alternatives etc.
China market overview
●China is facing the severe problem of energy shortage during its fast developing stage.
●China will be the biggest PV producer and has the potential to be the biggest consumer
of PV energy.
●China government has the stimulus plan for renewable energy.
●The industry is highly fragmented in China, and industry chain and structure didn’t
follow the positive pyramid structure, which means the over capacity in the upstream will cause problems of sustainable development in the future.
●There’s growing competition in China, both global participants and local participants
are quite active. First Solar, a US-based renewable energy company, will build the world’s biggest solar power plant in China, the 2GW complex will be built in Ordos City,
Inner Mongolia, by 2019.[4] There are also several Chinease companies moving
toward new PV technology, such as China Nuvo Solar Energy, Shenzhen Topray Solar, Suntech Power, etc.[5]
●The entry barriers are low in China because of the high fragmented industry and
shortage of standards and regulations. While the exit barriers are still high as cost
competitiveness is important in the long term.
●The advancements in solar PV will shatter the economic barriers to use in the future.
●Most local companies are lack of technology innovation.
So in order to capture a substantial market share in the rapidly emerging Chinese market for solar energy, REC should take the following strategies:
1. Leverage the core competence of technology
Leverage the Singapore facilities to deploy the China market. There are two main drivers support REC’s business in China. One is the stimulus plan from China government, the other one is cost competitiveness from REC’s technologies. Cost competitiveness is the key to success for PV, Singapore integrated facilities and capacity, together with REC core technologies will help REC
to position as the market leader in APAC and China.
2. Partnership with China government and regional firms
Partnership is also the good strategy, especially the establishing of joint ventures (JVs) between REC and Chinese companies. For REC, it’s one of the most feasible way s to enter the market. Chinese end-users tend to prefer joint ventures because of the image of quality that the international partners in JVs enjoy, and JVs can also maintain competitiveness by taking advantage of reduced production and labor costs and by avoiding custom tariffs. And because of the highly fragmented markets and well developed infrastructure for PV industry, it also gives REC a relatively good chance for partnership. China-based partners, with established production sites, distribution channels and market share will be of strategic importance to help REC clear the substantial hurdles to successful deployment in China.
As for the target market, China has the potential to become not only the leading producer of solar PV, but also the leading user. REC can target the growing market in China, RCE can also target the demands of other foreign-invested companies operating in China with their board portfolio. And lastly, REC can leverage the cost competitiveness of China manufacturing, to be actively involved in the global projects.
3)How could REC reconfigurate its value chain as it becomes a global solar energy
corporation?
Below is the current value chain for REC[1], as a fast growing global solar energy company, REC should further strength its value chain and core competence.
Generally a comp any’s value chain consists of tow broad categories of activities: the primary activities that are foremost in creating value for customers and the requisite support activities that facilitate and enhance the performance of the primary activities.[6] As REC vertical integration covers almost the entire industry value chain, it is more important for REC reevaluate its value chain based on the changing global markets.
Source: Photovoltaics: global markets and technologies, 2007, BCC Research [8]
For REC, it should put emphasis on the following primary and support activities to achieve the goals of continuous cost reduction, growth in production and revenue and profit growth:
Supply Chain Management
●As the upstream output within the REC group will affect the downstream output, it is more
important for REC to optimize its supply chain management. And the cross-group network is also crucial.
●The cost of raw materials and energy is the other important aspect.
Service
●As the vertically integrated solar energy producer, REC has the advantages to provide the
system integration service the customer.
●REC could further invest and improve on project management and system integration which
will greatly support the future growth in the global markets.
Marketing and branding
●Along with its global expansion, marketing and branding efforts are also important because
of the increasing market competition.
●As for REC, partnership with the geographical government and related firms could build its
reputation and support its entry to the new markets.
REC Value Chain, Source: https://www.doczj.com/doc/7817186516.html,
Product R&D, technology and system development
●Technology innovation is the core competence of REC, which keeps its market leading
position, so REC will keep pursuing technology advance in Fluidized Bed Reactor, Ingot Crystallization, Wafer Thickness and Cell and Module Efficiency and more other
innovations,[7] as solar energy industry is a highly technology-driven. The industry must continue to bring down cost to achieve grid parity both through cost effectiveness and
development of technology
●High investment level in next generation solar PV technology and construction of next
generation solar plants, to ensure the sustainable growth. For example, Thin Film will also be a major PV technology solution and nano- technology and other 3rd generation solution are also moving fast.
Management efforts
●Build more organizational expertise in performing value chain activities.
●To be cost-efficient in performing value chain activities.
So with the above emphases and other related activities, REC could translate proficient performance of value chain activities into competitive advantages, and ultimately create value for the solar energy customers, and deliver its mission of “DELIVER SMART ENERGY FOR A CLEANER FUTURE”.
Reference:
[1] https://www.doczj.com/doc/7817186516.html,
[2] Annual Report 2008, RENEWABLE ENERGY CORPORATION ASA
[3] EPIA, Global Market Outlook for Photovoltaics until 2013;
[4] Business Monitor International Ltd, China Power Report, Q2 2010
[5] Gerri Potash, “China & the Future of Solar Photovoltaic Technology: CIGS Thin-Film Solar Cells Will Rock the Industry”, 2009 Nerac report
[6] Arthur A. Thompson JR, A.J. Strickland III, John E. Gamble, Crafting & Executing Strategy
[7] Staying committed, annual review 2008, REC
[8] Photovoltaics: global markets and technologies, 2007, BCC Research