With this in mind, the key words that the company focus on are:
Refreshing: In the sense that as a young company, it works to bring some fresh thinking and practices in an existing environment, as it believes that youngsters inspire and change the world they grow up in.
Respect: In the sense that as a multi-cultural company, It ought to be sensitive and respect not only the rules and regulations, but also all players and stakeholders in place it interacts with, internally and externally.
Renewable: In the sense that behaviour must be repeatable. It urges its employees that the behaviours and the practices prescribed in the Code of Conduct should be repeatable day after day, in all circumstances, by everyone in the organization regardless of the located or activities carried out.
Regulatory Framework
Wind Power Industry worldwide is supported by grants and several government initiatives and incentives. Hence, any elimination of the following can eliminate the competitive advantage of the industry.
Current State
Indian and global government have enacted have enacted legislations to promote expansion of renewable energy sources.
Fiscal incentive scheme, tax incentives and public grants, such as preferential tariffs on power generated by WTGs or tax incentives promoting investments in wind power.
State governments have even given wind power generator with wheeling facilities.
Wind power generators are allowed to take power from the grid, to offset the impact of intermittent wind.
Country specific targets to obtain a set amount of electricity from renewable energy sources.
Global efforts to reduce carbon dioxide emissions
As per the assessment of CWET (Center for Wind Energy Technology, a Government of India undertaking), the harness able wind power potential in India is about 102,788 M.
Specific Environment
Market for Suzlon
- India has emerged as a preferred ‘manufacturing hub’ for wind turbines and large capacities have been set-up by leading global manufacturers to meet the domestic demand as well as for exporting the wind turbines.
- The progressive policy & regulatory framework prevailing in the country has been encouraging the growth of the wind power sector and driving investment at a fast pace.
- Ministry of New and Renewable Energy (MNRE), in its “Strategic Plan for the New & Renewable Energy Sector for the period 2011-2017” has targeted a growth capacity addition of 41,400 MW of Grid Interactive Renewable Energy Power with as much as 27,300 MW by wind alone.
- Under the Prime Minister’s National Action Plan for Climate Change, India has a target to source 15 per cent of electrical power from renewable by 2020
Competitors
In India
Suzlon (43%)
- RRB Energy Ltd (19%)
- NEPC India Limited (15%)
- Auro Mira Energy Company Pvt. Ltd. (9%)
- Enercon India Limited (4%)
- Pioneer Wincon Pvt. Ltd. (3%)
- Regen Powertech Pvt. Ltd. (3%)
- Indowind Energy (3%)
- Winwind (1%)
Porter’s five forces:
Bargaining Power of suppliers (Medium):
- Vertically integrated
- High dependence on composite material
- Geographically sparse WTG manufacturers
- Cost of Final product significantly higher than the cost on inputs
Suzlon has gone for vertical integration for vertical integration for most of the raw materials required. It has gone for vertical integration for foundry, forging and machining and has gone for expansion by 120000 MT in FY09, But in the case of gearbox, panels, generator and tower it has to partially depend on other suppliers. So From this we can say that bargaining power of supplier is medium to low.
High bargaining power of suppliers can be attributed to multiple requirement of number of components, which are either sourced from open market or imported. However, this issue has been resolved due to widespread vertical integration. Yet some components have long delivery time which gives medium bargaining power to suppliers.
Other Factors:
- Vertically integrated
- High dependence on composite material
- Geographically sparse WTG manufacturers
- Cost of Final product significantly higher than the cost on inputs
- Bargaining power of customers (Low):
The cost of switching cost is low to other components, so buyers can easily move from one company to the other.
- Buyers demand is weak or sellers are scrambling to secure the market.
With high growth rate of the industry it can be considered that the buyer’s demand is high. In case of the sellers it is found that the challengers are only increasing their market share where a small or id size companies are scrambling to secure the market. Thus in this condition the buyer’s bargaining power could be considered Moderate.
- Large volumes of delivery
In case of big wind turbine manufacturers they don’t take orders of less than 750kw which is considered to b a big amount by the suppliers. Thus the clients buying the turbine are important, and their bargaining power is high. Also there is a strong demand from the buyers which can be seen from high growth rate of the company. So averaging both we obtain bargaining power is medium.
Other Factors:
- Institutional buyers
- Large volumes of delivery
- The threat of substitute products (Low):
Since wind power is one of the cheapest sources of energy so the threat of substitutes is relatively low.
- Option of other renewable energy sources
- High Switching cost
- Comparable costs with substitute products
The substitutes like Thermal Power plant, Biomass Gasifiers, Solar Photo voltaic, Bagasse co-generation, Small Hydro generators, bio/diesel generators, are readily available, hence the pressure for competitive product is high. These substitutes are mostly competitively priced. The cost of the end users to substitute is medium to high, as for the thermal power plant the running cost is high thus overall cost could be considered hish, for biomass gassifier the running cost as well as the initial cost is low but there is a problem in generating energy. Also the operating cost is higher than that of the wind power. Thus overall we can say that the wind turbine is a unique product and the substitution from the substitute product is low.
Other Factors:
- Option of other renewable energy sources
- High Switching cost
- Comparable costs with substitute product s
- The threat of the entry of new competitors (Medium)
Since it is a capital intensive industry so only major players can afford enter the market either individually or in the form of JVs.
It requires a huge amount of investment to start the business and the payback period is also long about 8 years. So for every players its not easy from this highly capital intensive industry. So the threat from the new entrants is low.
- Favourable government policies
Many government policies endorse local renewable resources as alternatives to fossil fuels. In this case the entry of potential entrants is high.
The capital requirement in wind turbine industry is very high as to set up manufacturing facility of rotor blades set of 350 set is 65 crores. (2009 data). Similarly to set up gear box unit requires 100 million dollars. Thus potential entry of the new company is LOW.
Other Factors:
- High entry barrier
- Favourable government policies
- Capital intensive
- The Intensity of competitive rivalry (low)
Although the market is dominated by two players but the extent of competitive rivalry can be termed as medium because there is a scope for foreign players as government has increased the FDI limit to &4% from 51%.
Differentiation
Suzlon has differentiated itself and got the benefit of vertical integration through backward integration in terms of in house production. So from this we can say that the rivalry among the competitors is medium to low.
Rivalry using the Price cuts:
No company is using the price cut strategy hence there is no effect of this strategy. The rivalry is not intense.
Thus the overall rivalry is low to moderate in this industry.
SWOT Analysis on Suzlon
Strengths
- Integrated business model
Suzlon Energy Ltd. Is having an integrated business model that they don’t have to go to other suppliers for raw products. They have very good vertical integration for supporting their production activities. So they don’t have to be dependent for supplies.
- In house technology and design capabilities
They are having enough in-house technology development capabilities as they have skilled employees so that they can design their products of their own. They don’t have to go to outsider experts for designing the products.
- Market leadership in India and global presence
It is the only company of India which is having a global presence and as it is a market leader it can have benefits of its brand image.
- Prudent acquisitions and alliances
Suzlon has entered in to very prudent acquisition which is helping it for increasing its main strength of vertical integration as well as provides chance of global expansion also. For example: It has acquired HANSEN which was the world’s second largest manufacturer of gear boxes.
As Suzlon is the market leader in India, it can drive the price and others will follow it. But, it is now necessary for it to produce and sell at low cost and the production must be cost effective, because new global players are entering in to the market.
Suzlon is producing each type of wind turbines working in India. It has a wide range of products that has been sufficiently designed to cope with the specific conditions and to that give optimum results.
- Sophisticated and modernized research and development facilities
- Highly qualified and energetic work force
Weaknesses
Suzlon as a market leader don’t have that much efficient operationmanagement team. We can say this because there are many complaints of customers regarding their operating staffs who provide after sales service and it is also looking up to some extent in operating the business. Hence proper implementations of strategies are lacking.
- Growth in Assets diminishing Growth in Profits
Since last few years, Suzlon has focused more on integration. So it has gone for acquisition and backward integration which blocks its investments in assets. Thus its growth rate of profits has declined. So, compared to growth in assets the growth in profits is low which is not favorable for the firm.
- Unsupportive Stock Prices
When a company’s stock price is more than its book value, it can be considered as a good sign for investors, but currently due to the in favor market conditions Suzlon’s stock prices has fallen below the book value, while other competitor’s share prices has not declined below than their book value.
Before sometime, only Moody, a credit rating agency has down-graded Suzlon Energy Limited due it its financial weaknesses. They have also found the improper operation management at Suzlon.
- Improper Working capital Management
Earlier Suzlon was a financially strong company. But the previous down-turn in the world economy has brought the company in a critical situation. And Suzlon is also facing this problem because of improper working capital management. Many experts also think that Suzlon has paid more for its HANSEN acquisition.
- Weak Strategic Financial Management
Suzlon when expanded its business through RE Power, it has signed a contract that Suzlon will pay 65 million Euros in December 2007, 30 million Euro in April 2009 and final payment of 175 million Euro will be paid in May 2009. It can be found out that the cost of acquisition is too high and it has been provided that Suzlon will arrange these payments from external sources as well as from working capital which directly affects company’s performance domestically as well as globally. Such lacuna in appropriate and timely decision making in finance is the biggest weakness of Suzlon.
Opportunities
Now a day’s environmental awareness has been increased among the population of India. They have started saving energy and trying to reduce pollution. This factor is favourable for the wind power energy as it is an option to thermal power, which is also responsible for polluting the environment. So wind energy is having benefit of no pollution as it produces pollution free wind energy. And Suzlon is the market leader in India in this sector which is the backup force for it. Therefore, there is a high growth opportunity for Suzlon in future horizon.
As government has understood the importance of natural resources, the government is in favour of wind energy which uses wind and provides pollution free energy. Government of India is supporting firms those provide untraditional energy. As a part of this industry Suzlon can gain advantage of government initiatives. Government is also providing tax exemption on their earnings and also providing subsidies for encouraging investment in backward areas of society to generate employment.
Till now none of the Indian player other than Suzlon has gone for global expansion. So it can have advantage of covering untapped offshore market as an Indian player. Suzlon is also having strong financial backup compared to its competitors in Indian market.
As awareness of wind energy is increasing and people understood the importance of renewable energy sources which is cost effective, this leads to steady growth in demand giving an opportunities to business more.
- Vast coastlines of India and low cost
In India we have a vast coastal line which is very supportive to establish wind mills at lower cost. So this can be a favorable factor for this industry as well as will give an ample opportunity to Suzlon to extract more from this natural presence.
Threats
The government of India has approved FDI limits up to 74%. This can be a favorable factor for the whole industry, but for Suzlon it is a threat. Thought is a market leader; its technology efficiency is not up to the mark as compared to global giants like VASTAS. So entry of global players will affect Suzlon a lot.
As Suzlon is having a global presence, there is default risk of exchange rate fluctuations. As the exchange rates are fluctuating highly since last couple of years, it has become more risky for Suzlon to do business globally.
Earlier technology was not become obsolete so fast, but currentlytechnological development is very fast and new technology is been introducing in to the market very fast. So the company has to implement the new developed technology to compete in the market where it is having more corporate customers who generally know the product very well before insight.
The main objection to wind power is due to other environmental costs. Many wind parks remain shut-down for a part of the year because of bird migration patterns and numerous turbine related Bart-deaths. Furthermore, turbines take up lands; though larger turbines produce more power, they also take more land to operate safely and effectively, and since any man-made installation can have adverse effects on terrestrial ecosystems.
Conclusion:
From the above SWOT Analysis we can draw a conclusion that the Internal Strengths are sufficient to compensate the Weaknesses as well, but for this the management has to take effective and time bound actions. Though there are some threats that restrict its growth, they will not form a compound pressure on the development of the company. There is a sky of opportunities and it has to reach one by one by defeating the threats and by rooting out the weaknesses that if faces.
Strategies
Business level strategies:
Suzlon’s business strategies are primarily focused on:
-
Improvement of cost efficiency- To achieve the same it aims to ensure effective utilization of in house manufacturing facilities and relocate at places where manufacturing efficiency are low. Relocation at new places can expose Suzlon to risks of entering into a new market of which it is not yet familiar. It can also lead to extra expenses
- Improvement of manpower efficiency- Enhancement of manpower efficiency calls for implementation of high-end training and development programs. Such training endeavors can result in high employee costs.
- Negotiation with Suppliers- In the past Suzlon has been hit on grounds of rising raw material prices and quality of raw material being supplied to the firm. Furthermore, since Suzlon imports most of its raw material so it exposes the company to foreign exchange fluctuations. To dilute their percussions of such fluctuations, company aims to enter into stringent negotiations with the suppliers. By doing so it aims to achieve a promising bargaining position in terms of discounts. Any discounts on grounds of raw material can result in reduction of cost of goods sold which can increase the operational efficiency and improve the earnings of the firm.
- Expansion in new markets- Given the turbulence in US market and restrictions in the Chinese, market, the firm aims to foray into new markets such as Korea, South Africa. As result firm will have to incur heavy expenditure to expand and run their operations in these booming markets. Growth acceleration through focus on high growth markets and customer needs.
- Technological Enhancement- Suzlon aims to expand its product portfolio and enhance the efficiency of existing products through a range of R&D efforts which will further result in heavy R&D expenditure.
- Tapping New Markets- Given the acquisition of RE power, now Suzlon can leverage its expertise in off-shore wind energy generation. It will help the firm to increase its share.
Corporate Level Strategies:
Vertical Integration:
Suzlon’s vertical integration has been its success driver. Foresight of the current economic challenge and adopting a visionary strategy has set us forth to become the most vertically integrated wind turbine maker in the world. We embarked on a journey to develop leading edge technology and build manufacturing capability for all key components in the wind power domain.
- The Wind Industry’s supply chain experiences the critical bottleneck of a long production lead time for key components such as Bearings, Gearboxes, Forging materials etc. However, Suzlon has gained the critical competitive advantage with:
- Better control over time, cost & quality
- Long-term service support to customers
- Turbine technology integration
- Faster product rollout
Global Integration:
Suzlon’s ‘global experience, local expertise’ approach to talent capital has ensured a 32-nationality multi-faceted talent pool that goes wide and deep. This gives us the advantage of leveraging local talent and creating a truly global expert workforce. Suzlon’s continuing growth in Suzlon’s operations in all key international wind energy markets and presence in all emerging markets is further strengthening Suzlon’s global integration.
Currently, we do aerodynamics research in The Netherlands; develop wind turbines and components in Germany. Suzlon’s manufacturing footprint spans 4 countries: India, USA, Germany and Portugal, and Suzlon’s 15 units make all key components of wind turbines. This is a testimonial to Suzlon’s focus on global integration and Suzlon’s passion to make Suzlon a company as global as the wind.
Quality Management Strategy: It’s a practical approach that is well adapted to excel Suzlon’s strategic business unit growth, cultural bandwidth, quality levels of manufacturing verticals along with backward integration. Quality Management at Suzlon seeks to continually leverage upon its size by strengthening its execution capability to deliver a customer satisfied, reliable and robust user friendly product, with focus on rapid reduction of life-cycle cost of the product, efficient product performance that would ensure a sustained and profitable growth of the organization.
Functional Level Strategy:
The strategic goal of Suzlon is to bank on their core competencies i.e. The Product development and supply, project services, operation and maintenance services that gives them a competitive advantage.
Product Development and Supply:
Suzlon’s approach to technology is one of constant research, development and innovation. To create products that deliver high performance and reliability in varied operating environments, we employ the best in every field of development in the wind energy industry. With world-class design, R&D teams, and state-of-the-art facilities in Belgium, Germany, India and The Netherlands, Suzlon’s R&D team is a combination of the finest of global experience and in-depth expertise.
Suzlon, in joint venture partnership with Repower, has established the Renewable Energy Technology Center (RETC) in Hamburg. RETC provides cross-industrial and interdisciplinary expertise in the areas of Research, Technology development, Testing, Validation and Consulting in cooperation with an international network.
Project Services:
Suzlon is an integrated wind energy solutions provider. It offers the entire gamut of solutions starting from wind resource mapping, land acquisition, technology development, turbine manufacturing, and EPC projects and completing the chain with operations & maintenance services.
Suzlon focuses on providing a complete range of efficient, cost effective wind energy solutions. Using the support and talent of Suzlon’s multi-cultural, multi-ethnic global workforce, we have successfully constructed and managed customized wind farms in varied geographic areas and climatic conditions.
Operations and Maintenance Services:
Suzlon’s operations and maintenance teams are committed to extracting longer life spans and higher returns from every wind turbine we manufacture, which is why we offer a comprehensive range of value-added services and solutions. Suzlon’s operations and maintenance efforts ensure energy yield optimization in accordance with onsite climate and grid conditions. We also provide detailed monitoring services for every wind turbine erected. This combined synergy of Suzlon’s business units and customer support network succeeds in providing Suzlon’s customers with benefits that help satisfy their expectations of a global wind energy solutions provider.
Overview of the strategies that worked:
- Reverse Outsourcing
- Technical expertise built on licensing agreement
- Vertical Integration and Acquisition
- Integrated manufacturing capability
- Innovation practices for transnational firms
- Maintain control of intellectual property rights
- Wide range of offerings
Recommendations:
• Sustained R&D efforts
• Synergize with re-power
• Reduction of inventory levels and focuses on improving collections
• Focus on off-shore markets
• Special attention to Chinese market
• Leveraging on cost advantage through backward integration
• Control on supply chain
Operational efficiency of Suzlon
To improve the operational efficiency of Suzlon must focus of reduction in cost of goods sold. As of now, year on year the increase in sales turnover has been lower when compared to increase in cost of goods sold. The rise in Cost of goods has accrued due to escalating raw material prices. Hence, to maximize earnings Suzlon needs to tweak its supply chain. Furthermore, an increase in the turbine prices will not be possible owing to intense competition so effective utilization of resource is the need of the hour.
Adapting to business environment
To adapt to rapidly changing business environment, Suzlon has to develop state of the art products. So, investment in R&D activities is essential.
By acquiring RE power, Suzlon can leverage its expertise in off-shore wind energy market to enhance its presence in Europe
Company should look beyond US and China and tap markets like Ukraine, Bulgaria and Australia
Future:
Future is optimistic, given the increased awareness about benefits of renewable energy and ambitious renewable energy targets by global governments. Through its diverse presence across geographical locations, Suzlon can leverage the global market. Although it’s difficult to comment on the short term growth prospects but long term prospects are definitely bright.
References:
1. www.suzlon.com
2. Times of India
3. www.iloveindia.com
4. www.moneycontrol.com
5. www.hardnewsmedia.com
6. www.steelguru.com
7. www.worldnews.com
8. In.reuters.com