Global Strategic Management - Case Study Example

International Business Strategy: SolarWorld USA and Introduction International business is the exchange of goods and services between entities in different countries (Ahlstrom and Bruton, 2009). International business is enabled through globalisation and international cooperation. In today’s business world, every firm is directly or indirectly affected by international business. As a result, most companies are taking more proactive approaches by internationalising their operations to stay relevant and profitable in the global economy (Hill and Jones, 2012). In today’s business world, it is not surprising to find even small and medium enterprises having international operations with at least one international firm in their chain of supply. To thrive in international business, a firm needs to have excellent international business strategies. These strategies will determine and guide the commercial transactions between firms located in different countries (Hill and Jones, 2012). There are several theoretical models that have been advanced to explain the significance and impacts of international business strategies. The three most used ones, according to Peng (2013), are the industry-based view, the resource-based view, and the institution-based view. Depending on which model was adopted, different strategies can be arrived at by firms to gain a competitive advantage over competitors in an industry (Frynas and Mellahi, 2011). This paper examines the operations, performance and strategies used by SolarWorld USA. It identifies the competitive forces affecting global solar energy, evaluates the resources and capabilities of SolarWorld USA, determine the institutional forces that shape the emergence and the evolution of the industry and, finally, recommend strategic measures that SolarWorld USA can implement to maximize its profitability in light of its declining global market share. Industry-based view This is a view that explains that the firms in a particular industry are influenced by competitive forces in that industry (Peng, 2013). As such, the firm’s strategies will be influenced by the presence of these forces, or lack thereof. These forces were identified and identified by Porter as the bargaining power of suppliers, buyers bargaining power, threats of new entrants, rivalry among firms already in existence, and the threats posed by substitutes (Porter, 2008). Figure 1 shows how these forces interact to determine the firm’s decisions. Figure 1: The 5 competitive forces affecting a firm in an industry (Source: Porter, 2008) The global solar industry, just like any other industry, is influenced by these five forces. The bargaining power of the customers determines pricing strategies as the firms strive to provide affordable products that can sell. The bargaining power of supplier determines the cost of production. The more the suppliers, the less their bargaining power in an industry (Porter, 2008). The threat of substitute determines the need for a company to differentiate its products to cut a niche for itself and maintains its customers. The threat of new entrants determines the strategy the firm will use to gain competitive advantage that is hard for competitors to replicate (Hill and Jones, 2012). Lastly, the intensity of rivalry determines a firm’s existence, its exit costs, and its prevalence to grow among others. The US solar industry is a bulging industry that has been experiencing growth since the turn of the millennium. The industry, through its manufacture and sale of photovoltaic solar panels, contribute nearly 1% of the US electricity supply (Seia.org, 2014). This contribution rate is expected to grow to over 10% by the year 2025 (Oremus, 2014). Due to this exhibited potential, there is a high rivalry among existing firms. The main solar energy products provider in the US is the SolarWorld USA, a subsidiary of SolarWorld AG. The others include First Solar Inc and Sun Power Corp. In the recent years, SlarWorld USA has encountered stiff competition especially form solar energy products from China. The Chinese firms intend to take advantage of the US bulging industry by offering cheaper products thereby phasing out most US firms manufacturing photovoltaic panels from the industry (Oremus, 2014). The threat of substitution in the US industry is prevalent as is that of new entrants. Since there are new suppliers of the raw materials used for making these solar panels, the bargaining power of suppliers is actually very high. However, there are cheaper options abroad if the suppliers prove to be too expensive. Furthermore, the US government is promoting the use of renewable energy by giving incentives to solar energy users and manufacturers of solar panels. This makes it easier for individuals to access them even if it is through securing loans. The bargaining power of customers is, therefore, greatly enhanced (Frynas and Mellahi, 2011). Resource-based view The resource-based view state that the differences between firms’ resources determine the strategies the firm employs (Peng, 2013). The resources at the firms’ disposal, if correctly harnessed, can create a competitive advantage for the firm. The value, rarity, imitability and organization (VRIO) model is usually used to explain the resource-based view of a firm to enable it to create and maintain a competitive edge over its competitors (Peng, 2013). SolarWorld USA’s major resource advantage is that it is fully vertically integrated (Peng, 2013). This means that it carries out all the activities in its chain of production all by itself. For example, it manufactures the silicon used to make the photovoltaic solar panels. With the raw materials, it manufactures the solar panels, sells them and even provides installation services to the customers (Solarworld-usa.com, 2014). SolarWorld USA is, thus, able to create a profitable and resilient value chain. The fully integrated solutions provided by SolarWorld USA enhance the value of its products. Its dual purpose carport provides multiple opportunities for use of solar panels. SolarWorld USA utilizes rarity by producing polysilicon (Peng, 2013). Creating a strong product segment makes it harder for competitors to replicate the product. If the product takes more time and capital to produce, it becomes rare. Since the Chinese firms receive as much incentives from their government as the US based firms from the US government, the advantage of imitability is not enjoyed because their financial strength match one another (Marconi, 2000). The Chinese government has been on the forefront of providing suitable environment for the flourishing of the solar energy industry in China (Oremus, 2014). These products are then sold at extremely competitive prices in the US posing a great challenge to SolarWorld USA. Lastly, SolarWorld utilizes its organizational value by having an experienced management team at the helm. This management team has been managing its operations for decades and is conversant with the various business cycles in the industry. The company’s long history also acts to its advantage as it reinforces credibility and reliability of its products (Solarworld-usa.com, 2014). Institution-based view The institution-based view is the view that the policies of the major institutions governing an industry will determine the emergence, development and strategic behaviours of firms in that industry (Peng, 2013). The government is a major institution in international business. Its tax policies, incentives and loans either kill an industry or excite more growth. The entire US solar industry is funded by the US government (Seia.org, 2014). The US government provides this support to firms in the solar industry through incentives that encourage production, sale and installation of photovoltaic solar panels. For instance, the government rewarded those companies that supported the American Jobs Creation Act of 2004 by offering them tax incentives (Peng, 2013). That way, the government was able to promote the employment of American citizens and also the production and use of renewable solar energy. Another relevant example is when the government provided a US $100 billion kitty to firms in the solar industry if they support the Economic Recovery Bill of 2009. Through these incentives the government was able to encourage more firms to use green energy and be mindful of the environment they are operating in (Peng, 2013). Another area where the government has been involved and which has a bearing on the emergence and evolution of the solar industry in the US concerns the antidumping legislation. Not so long ago the US firms were the largest manufacturers of photovoltaic solar panels (Oremus, 2014). China has now overtaken the US and is the largest manufacturer of photovoltaic solar panels. Oremus (2014) observes that a lot of this sudden revival has been attributed to the Chinese government support. Due to this support, the Chinese firms produced more solar panels than the Chinese market needed. The prices of the solar panels in China fell due to excess supply. The glut necessitated them to export these solar panels. And since the US proved to be a profitable market, most China products started being sold in the US and at very cheap prices (Peng, 2013). This has led to some US solar manufacturing firms, including SolarWorld USA to implore the government to impose some tariffs and embargoes on some of the Chinese products. The government, through the US Commerce Department, accepted and imposed the 24% to 36% tariffs on solar panels from China, but to date, the move has not helped the situation as still the Chinese products continue to flood the market (Oremus, 2014). Recommendations SolarWorld USA has already established itself as one of the major US firms in the solar energy industry. However, with the invasion of Chinese products into the market it is time to reconsider its strategies. In light of the aforementioned problem, the major strategies that can prove helpful to the company include cost leadership, product differentiation and segmentation (Marconi, 2000). Through cost leadership, SolarWorld USA may try to lower its cost and, consequently, product prices, by sourcing for cheaper raw materials. For example, it may opt to outsource polysilicon from Taiwan, just like major Chinese firms such as Suntech, Yingli Solar and Sungen Solar do (Oremus, 2014). When the production cost is reduced the product prices also reduce. This translates to more customers and more profitability. Alternatively, the company can further differentiate its product. Production of high quality, reliable, durable solar panels is not enough. SolarWorld USA should consider making their products stand out. Since it is hard to differentiate solar panels, the company should pursue intangible differentiation (Peng, 2013). Strategies here may include extensive advertising to improve the company’s image and increase value of the product to create customer loyalty. If these strategies fail, SolarWorld USA should consider moving investing in a different market and selling its product in a market where the Chinese firms have not yet invaded, for example, in Africa and South America. Since their production is subsidized, the firm should be able to provide its products at competitive prices in the foreign markets and enjoy the advantage the Chinese firms are currently enjoying in the US market. References Ahlstrom, D., and Bruton, G. (2009). International management: Strategy and culture in the emerging world. New York: Cengage Learning. Frynas, G., & Mellahi, K. (2011). Global strategic management. Oxford: Oxford University Press. Hill, C., and Jones, G. (2012). Strategic management: An integrated approach. New York: Cengage Learning. Marconi, J. (2000). The brand marketing book: Creating, managing and extending the value of your brand. New Jersey: McGraw Hill Professional. Oremus, W. (2014). The world’s dumbest trade war. A spat between the US and China threatens the future of solar power. Retrieved from http://www.slate.com/articles/technology/technology/2014/02/u_s_china_solar_trade_war_solarworld_case_is_bad_for_green_jobs.html Peng, M. (2013). Global strategy. New York: Cengage Learning. Porter, M. (2008). Competitive strategy: Techniques for analyzing industries and competitors. New York: Simon and Schuster. Seia.org (2014). Solar industry data. Retrieved from http://www.seia.org/research-resources/solar-industry-data Solarworld-Usa.com (2014). Financing options for your home solar system. Retrieved from http://www.solarworld-usa.com/solar-for-home/home-solar-financing Read More