First Solar as One of the Leading Producers of Solar Energy - Essay Example

Final Case Report Introduction First Solar, Inc is one of the renowned American manufacturer of photovoltaic cells and thin units of solar panels. First Solar is involved in producing unique cadmium telluride film as a semiconductor for producing low cost electricity. The company is providing tough competition to the other producers of solar products. The company has become the first company to reduce its manufacturing costs and accordingly, sets a new base for capital efficiency. The company has faced increasing competition because of the entry of new firms in the solar industry (First Solar Inc, 2013). In 2011, the entry of the crystal silicon producers mainly from China has resulted to the reduction in the module costs. In order to face the increase in competition, First Solar has applied new technological approach in order to manufacture solar cells. The case of First Solar revealed the fact that the concerned company has been effective in performing operations competitively owing to cost advantage in using crystal silicon. The key strategic issues identified from the case of First Solar are that the company has faced increased competitions from other producers of solar modules. In addition to this, the entry of Chinese firms in solar industry has been affecting the leadership position enjoyed by First Solar as an individual competitor in the solar industry. In this respect, the competition from other firms had a negative impact on the market share of First Solar (First Solar Inc, 2013). The aim of the essay is to develop strategic planning report for First Solar on the basis of identifying the problems or issues faced for market competition. Furthermore, internal and external analysis of the environment has been conducted with the intention of identifying the threats as well as opportunities for the concerned company. In addition to this, strategies have been developed based on the issues identified using different analytical models that are essential for the success of the company in the long run (First Solar, 2015; First Solar Inc, 2013). Analysis of the Companys Mission Statement and Objectives First Solar is the global producer and seller of solar modules and uses photovoltaic energy for producing the same. First Solar as one of the renewable energy organizations is devoted to sustainable business practices in order to gain competitive position in the market. The mission statement of the company reveals the objectives of the organization. The mission of First Solar is to provide clean and affordable solar electricity worldwide. In addition to the use of eco efficient solution to generate solar electricity, the company focuses on lessening environmental impact and to provide products at a lower cost (First Solar, 2015). The strategic objective of the company is also to reduce the overall costs involved in producing solar electricity with the help of development in technology and changes in different operational activities. In addition to this, cost advantage and involvement in the acquisition activities also ensured the development of the solar business. The shift to sustainable market ensured less dependence on government subsidy and policies. First Solar also aims at developing technologies that is crucial to maintain its position in the market as one of the low cost provider of solar modules. Moreover, the concerned company maintains its financial strength that ensures continuation of the investment activities to develop new market in order to attain the long term organizational objectives. Another strategic objective of the company is to minimize the dependence on other form of energy and to ensure reduced emission of the greenhouse gases with the increased use of solar energy. Furthermore, the financial position of the company also assures return on the investment for the overall capital employed (First Solar, 2015; First Solar Inc, 2013). First Solar competes with a number of firms in photovoltaic as well as solar market. The increases use of renewable sources of energy has resulted to increased competition in the solar market. In addition to this, the subsidies provided by government are another factor that has enabled the entry of new forms in the solar industry. First Solar faces competition from various international producers including Suntech Power Holdings Co., Ltd and others. The competitors have greater access to technology, finance, human as well as other resources. The availability of resources indicated that the competitors are able to respond faster to the changes or emerging technology (First Solar Inc, 2011).For instance, the mission of Suntech is to ensure the availability of the cleanest and abundant form of solar energy to everyone. The key objective of the organization is to ensure availability of solar energy not only for residential purpose, but also to meet the corporate needs. Unlike First Solar, Suntech is also dependent on Research and Development activities as well as customer based innovation in order to attain the long term organizational objectives (Suntech Power Co Ltd, 2015). External Analysis of the Competitive and General Environment For the external analysis of the company, Porter’s five force analysis has been used that indicates the profitability and competition of the business within the solar industry. Competition The changes and development in technology is a factor that is crucial and is likely to increase completion among the solar industries. Technological development results to development of new products and processes that also affects the market demand for renewable sources of energy. The technological factors involves various external factors including activities related to research and development as well as application of new ideas and inventions with respect to the use of renewable sources of energy. The government initiatives to provide subsidies and other tax benefits are another cause that has raise the competition among the solar energy producers. Tax benefits and other incentives are provided to these companies facilitates reducing the costs involved in various other operational functions. Some of the policies introduced by the government include Solar American Initiatives introduced in early 2006 with the objective of making solar energy and electricity production cost competitive as compared to other forms of renewable sources of energy by 2015. In addition to this, the Energy Improvement Act of 2008 on the other hand facilitates tax benefits for initiatives based on renewable energy (Henry, 2011; Zahringer, 2011). In addition to this, the Clean Air Act of United States has defined the standard of clean air along with the percent use of renewable sources of energy. This in turn has increased the demand for the use of renewable sources of energy also indicated reduced environmental impacts. Another initiative of government in improving the growth of photovoltaic cells in solar production includes creation of subsidy in order to encourage the production of renewable sources of energy. The feed-in-tariff and other benefit system have been developed to provide subsidy in solar generation. All these factors have resulted to increase in competition (Henry, 2011; Zahringer, 2011). First Solar was facing increasing competition from other producers of solar energy. With respect to the technological improvements, the company has acquired technology of c-Si solar cells that is manufactured by Tetra Sun. The implementation of new technology is likely to be beneficial for First Solar because it served as a way to face the increase in silicon prices. Moreover, the new technology has the potential to compete with other firms with respect to constraints such as installation of photovoltaic cells. The above figure relating to the installation of the photovoltaic cells indicated the different purposes for its use in order to compete with other producers of the solar modules. In addition, First Solar has also acquired GE’s Prime Star solar, as one of the leading manufacturers of cadmium telluride (Zahringer, 2011). Figure-1 (Installation type of photovoltaic cells) Source: (First Solar, Inc, 2013) Suppliers Power Supplier power also affects the growth and development of First Solar. The supplier has the power to regulate the prices of the raw materials that in turn affects the overall production of solar energy. From the figure below, it can be recognized that the number of suppliers is another factor that affects the uniqueness of the products manufactured. First Solar uses cadmium telluride for the solar modules. However, due to the toxic nature of the raw materials, the number of suppliers is less. The limited number of suppliers raises the power to bargain in term of price. The increase in demand for solar energy is a factor that may result to the shortage of raw materials. In addition, the failure of the equipment suppliers is also likely to affect the production process and this in turn has a negative impact on the demand for solar energy (First Solar, Inc, 2013; Zahringer, 2011). Source: (Zahringer, 2011) Buyer’s power Buyer’s power is relatively strong in solar industry as compared to other businesses. The solar products are mainly differentiated on the basis of cost of per watt production. Therefore, the buyers have the power to discriminate the producers of solar module on the basis of prices charged for the service that in turn has negative an impact on overall sales and profitability First Solar, Inc, 2013; Zahringer, 2011). Barriers to new entry Barriers to entry include several factors that are likely to affect the current as well as future position of First Solar in the long run. One of the major barriers to entry is the amount of research and development activities that is essential to identify the required technology for the success of the company. Research and development activities are also essential to attain a competitive position in the US market. The government subsidies and other tax incentives also act as a barrier for the growth of the solar industry. Government interest in renewable sources of energy is the factor that affects the attractiveness of solar energy. However, cutting back various incentive and subsidy is likely to have negative impact on use of solar energy (Zahringer, 2011). Threat to New Substitutes Threat to entry of other renewable sources of energy is likely to influence the growth of the solar industry. In addition to this, First Solar is likely to face competition from other producers of solar modules as well as in terms of growth of solar thermal. The solar panel industry has a number of substitutes including photovoltaic cells made of silicon. In addition to this, the company is likely to be affected by the growth of other renewable sources of energies. Furthermore, the market for renewable sources is developing faster because of the increase in environmental concern and to generate high level of electricity (Zahringer, 2011). Internal Analysis A SWOT analysis has been used to examine the strengths and weaknesses of First Solar. In addition, the model aids in examining the threats and opportunities in the external environment. Based on this model, strategies have been developed to overcome the threats and to use the opportunities available. Strengths and weaknesses represent analysis of the internal environment that is essential for managing the organizational resources effectively and to improve profitability of the company in the long run. On the other hand, external analysis of the environment is linked with identifying threats and opportunities. The opportunities refer to the favorable situation that can be utilized to enhance the growth and development of First Solar. In this respect, threats represent the risks involved in operating the business. These are the macro economic factors that affect the competitive position of the concerned company (Zahringer, 2011). Threats and Opportunities Threat: High Competition First Solar is one of the leading producers of photovoltaic modules, but has faced increased completion from other producers of renewable sources of energy. Many companies have entered in the market of solar module and thus, increasing competitive pressure on the concerned company. The entry of crystal silicon producers for instance Trina Solar and Suntech from China have increased the production of crystal silicon and have reduced the module costs. The Chinese firms have been able to capture the solar market in a very short period of time. Furthermore, the Chinese firms are supported by governing authority to gain leadership in photovoltaic solar cells. In addition, the subsidy offered by the US government has led to the growth of the solar industries (Zahringer, 2011). In this regard, the approval of the “golden sun” program has reimbursed the capital expenditure in installing different medium of developing solar energy. The entry of new competitors and implementation of various programs to support the use of solar energy is likely to act as a threat for First Solar. The development of solar industries is a threat for First Solar, as with the entry of new firms is likely to increase the existing competition with respect to the use of renewable sources of energy. First Solar has been identified to have price advantage due to the use of cadmium telluride for producing low cost electricity. However, the pricing strategy is not feasible for First Solar to compete with the new firms entering the solar market. The entry of new competitors in the market indicates the fact that the competition level in the solar industry is based on the implementation of new technology and innovation. The most essential strategic advantage of First Solar is low cost production as well as manufacturing with respects to its competitors. Therefore, in order to face the increase in competition, it becomes essential for the company to devise methods of manufacturing and to implement new technology (Pahl & Richter, 2009). First Solar faces increase in competition from not only other producers of solar energy, but also from the manufacturer of crystal silicon modules and other photovoltaic systems. In addition to this, the solar panels developed by First Solar have a number of substitutes including the photovoltaic cells using silicon and various other forms of renewable sources of energy. The concerned company is likely to be affected by the increasing use of other forms of energy. With the improvement in technology, the growth of fuel market has also enhanced raising the use of low carbon emitting fuels that has the potential to produce high electricity. Furthermore, development of other alternative sources of energy for instance wind and tidal among others are likely to act as substitute for solar energy. For instance, the use of hydrogen fuel that is product of natural gas is likely to gain increasing importance in future due to the affordability to generate power in small scale and in an economical manner. Therefore, the increasing importance of other forms of energy is likely to act as threat for First Solar (Zahringer, 2011; Pahl & Richter, 2009) Lack of Government Subsidy or Incentives The solar products are generally marketed using subsidies or other incentive benefits provided by the government. In this regard, if subsidies as well as incentives are removed, then First Solar is likely to suffer in terms of reduced sales (Zahringer, 2011). Opportunity: Future Opening and Expansion of Manufacturing Capacity The government initiative for the use of renewable sources of energy has the potential to improve solar production in foreign markets. The expansion of business in foreign market opens opportunity for the concerned firms to expand manufacturing capacity. The expansion of the business in foreign markets in turn is likely to have a positive impact on revenue from foreign operations. In addition, the expansion of business in the US is more likely to affect the rate of unemployment due to the availability of skilled and cheap labor that in turn affects the demand for solar panels (Menenberg, Lacy & Balayan, 2009). Opportunity: Influence of Political Power on Policy First Solar is one of the global producers and suppliers of solar modules and therefore, the company is likely to be performing operations in accordance with the policies implemented by the US government. Accordingly, the government is also identified to be supportive toward the solar industry, so that companies associated with this industry are able to perform their operations sustainably (Menenberg, Lacy & Balayan, 2009). Internal Analysis Strength: Cost advantage First Solar has cost advantage and has set a new standard of capital efficiency by reducing the manufacturing costs below $1 per watt. Therefore, First Solar has cost advantage in producing the cheapest thin film for solar panels (First Solar, Inc, 2013). Acquisition With the increase in completion and application of key business model along with good financial position, First Solar has been identified to possess the key sources to compete in future. This has enabled the company to takeover Turner Renewable Energy in 2007. First Solar has been the first organization to enter into the solar power system business. The downstream integration has been proved to be useful to have a control over the cost of solar power. In addition to this, further acquisition of Next Light and Optisolar has enabled the company to gain independent power as a producer to end customers. Both the acquisition by First Solar was related to system business (First Solar, Inc, 2013). It has been also recognized that the involvement in system business is one of the key factors responsible for competitive advantage in solar energy industry. A shift towards system business has allowed the concerned company to provide access to the end customers directly that in turn facilitated it in having essential control over cost involved in delivering energy. In this context, system business differentiates First Solar from other competitors of module manufacturer (Menenberg, Lacy & Balayan, 2009). Vertical Integration Source: (First Solar, Inc, 2013) Product Revenue The impact of shift in solar business of First Solar can be examined for the effect on company’s finance. The revenue earned from the system business indicates more than 90 percent of the overall company’s revenue in 2012. The shift in business has been beneficial for the company, as it enabled in maintaining proper market for photovoltaic modules. In addition to this, the shift to system business has reduced the extent of intense competition in photovoltaic cells industry (First Solar, Inc, 2013). Product Revenue Source: (First Solar, Inc, 2013) The above table depicted the total amount of revenue earned from solar modules and solar power system. Solar module revenue indicated that the revenue earned from the sale of solar module to the third party members. The revenue earned from solar modules is identified to be declining from 2010 to 2012. On the other hand, revenue earned from the sale of solar power in terms of products and services offered for instance the installation of solar system has increased to a large extent. The revenue earned from solar power system is increasing since 2010. First Solar has grown with respect to shift towards system business and that is the result of successful acquisition of different companies (Zahringer, 2011; Menenberg, Lacy & Balayan, 2009). Financial Strength The financial position and the availability of good cash balance is an essential factor for the growth and development of First Solar. In addition to this, the increase in competition among the renewable energy producers as well as the entry of Chinese firms has raised the competition pressure. The availability of finance and investment capability is a crucial factor for implementing technological changes for better sustainability in the solar industry. In addition, the financial strength of the company is necessary to meet the increasing demand of renewable sources of energy (Zahringer, 2011). During intense competition and adequate supply of energy resources, First Solar has been able to maintain its financial position. Without any external investment, First Solar has been able to perform operations in a competitive manner through acquisition and expansion of business for developing system business. A positive cash balance was the key factor due to which First Solar has been able to maintain a healthy relationship with the lenders (First Solar, Inc, 2013). First Solar is financially conserved but having a strong net cash position in contrast to other rivals in the solar industries. On the other hand, the entry of the Chinese firms was a threat for the growth of First Solar. However, in order to gain the market share and expand in an effective manner, most of the Chinese firms are recognized to be borrowing capital from the government. The positive cash flow position of First Solar has proved to be the key factor for the growth as well as development in the long run. In case of increased competition, cash in hand is identified as another factor vital for maintaining a competitive position in the solar industry (Menenberg, Lacy & Balayan, 2009). Net Cash Position Source: (First Solar, Inc, 2013) Weaknesses: Suppliers of Raw Materials & Dependence on Cadmium Telluride Supplier power is another factor that is likely to affect the growth of the solar industry. The demand for raw material is generally fulfilled by fewer suppliers. Therefore, any disruption in the supply chain system is likely to affect the production of First Solar. In addition to this, suppliers are identified to be having a control over the price of raw materials on overall production of solar energy (Zahringer, 2011). First Solar uses different raw materials for the production of solar module among which one of the most crucial materials is cadmium telluride film. The limited number of raw material suppliers is a weakness, as the suppliers are able to regulate the prices according to their needs. On the other hand, dependence on toxic elements for instance cadmium telluride also affects the production of solar module, because it is one of the rare metals. The government regulation poses a limit to the production of cadmium telluride and that in turn affects the ability to perform effectively in different operational areas of First Solar (Zahringer, 2011; University of Oregon investment group, 2011). Alternative Strategies Strategies are needed to be designed in such a manner to reduce the overall threats faced by First Solar and therefore, utilize the strength to make the most of the opportunities available. In this context, the alternative strategies are provided hereunder. Investment in New Areas Based on the information obtained from different analytical tools, it has been identified that First Solar has a strong cash balance and acquisition of Next Light and Optisolar is likely to be beneficial for the solar industry. Acquisition is identified to be an effective strategic alliance tool with the assistance of which First Solar has been facilitated to have a better access to technology of other companies. This further facilitates technological development of First Solar as well as improvement in production and on the other hand, maximizes sales and profitability of the concerned company. First Solar has the potential to utilize a stable cash position to acquire new talents with the aim of ensuring that the company is able to perform operations in a competitive manner. Furthermore, the access new technology, innovation is likely to have First Solar ahead of different competitors, which in turn ensures leadership of the concerned company among other solar companies (Menenberg, Lacy & Balayan, 2009). Investment in Research and development Investment in Research and Development activities is likely to ensure the growth of First Solar. The two major reasons identified that indicate the need for investment in research and development activities includes identifying raw material that has the potential to replace the use of toxic cadmium telluride. In addition, research and development allows analyzing the use of other renewable sources of energy that in turn assist in identifying the weaknesses associate with solar energy. On the other hand, sufficient availability of cash balance and financial strength revealed the fact that First Solar is capable to perform operations in an innovative manner (Zahringer, 2011; Menenberg, Lacy & Balayan, 2009). Diversifying the Product Line Diversifying the product line is another strategy that is likely to have a positive impact on the existing single product line of First Solar. Diversification of the product line enabled the company to identify the potential risks involved in producing solar energy. This can be achieved by focusing more on increasing the sale of all solar power plant products. Another way to diversify the product is effective utilization of technology linked with solar panels. Solar panels convert the energy of sun into energy. In order to utilize the energy as well as to covert energy into electricity, proper inverter is required. The expansion in use of solar panel for instance residential rooftops requires more number of inverters. For this purpose, First Solar requires to invest in inverter companies. Therefore, an investment in the inverter company has the potential to reduce the overall risk involved in producing solar energy. On the other hand, diversification of risks allows the company to reduce production cost by combining the sale of inverter along with the solar module. The concerned company is likely to take the advantage of lower costs by either raising the overall profit margin or expanding the sale of its products by offering discounts to its customers (Menenberg, Lacy & Balayan, 2009). Merger and Acquisition Investment in research and development activities ensures implementation of new innovative technology in the production of solar modules and other related products of First Solar. In addition, it is recommended that First Solar should look for merger and acquisition to expand business for better diversification of businesses. The solar companies require a proper technology to store solar energy for instance solar thermal. Therefore, merger and acquisition will facilitate the company to efficiently access to technology enabled company to grow at a much faster rate as compared to the other competitors (Zahringer, 2011). Recommendations The situational analysis of the internal and external environment revealed some of the major issues or problems faced by First Solar. One of the problems is the lack of proper government subsidy and incentives. The government funded policies and tax incentives for the solar companies are temporary and therefore, it is one of the raising concerns among the solar module producers. The installation of solar electric system in the United States REC solar has strengthened the capability to raise the market for solar energy (First Solar, Inc, 2013; Zahringer, 2011).Therefore, if the state law authorize the use of renewable sources of energy, then the overall demand of photovoltaic is likely to grow in the US. The growth and development in photovoltaic market is the result of government subsidy. The tariff system generated by the governing authority of the nation for instance feed-in-tariff system of Europe supports growth of the solar industry. The above recommendation is feasible politically due to the involvement of the government authority in implementing the policies and providing subsidies to the solar companies. On the other hand, it is also practical with respect to the organizational policies and objectives (Menenberg, Lacy & Balayan, 2009). The strategies developed indicated the need for increased investment in research and development activities to ensure the growth of First Solar in the long run. From the above analysis of the external environment, it has been identified that growth of solar companies is likely to be affected by the development of the other sources of energy. In addition, the increase in competition is another factor that reveals the need for the implementation of new technology. Therefore, it has been recommended that the concerned company requires access to new innovative technology. For this purpose, investment in the research and development activities is likely to beneficial for the company (Zahringer, 2011; Menenberg, Lacy & Balayan, 2009). In addition to this, merger or acquisition is another way that provides an access to technology required for performing operations in a competitive manner. In the context, it has been identified that First Solar acquired Next Light and Optisolar in 2009 and 2010. The acquisition has proved to be beneficial for the company, as it has facilitated the expansion in system business. On the other hand, research activities enable the concerned company to face intense competition as well as to identify raw materials that can replace cadmium telluride. Moreover, in order to avoid price based competition among the competitors, it is essential to ensure strategic advantage in technology. Technological development leads to a sustainable competitive advantage with respect to all solar companies (Zahringer, 2011). The risk involved in maintaining perfection in a single product line can be reduced by diversifying the product line. It has been recommended that First Solar can diversify the product line for performing operations competitively. First Solar can implement diversification by using innovative technology linked with use of solar panels. The installation and operation of solar rooftops requires the use of inverters. Therefore, an increased use of inverters by the solar companies ensures investment in Inverter Company that is likely to be cost advantageous (Zahringer, 2011; Menenberg, Lacy & Balayan, 2009). Implementation Plan The table below represents the recommended strategies for First Solar and the timeline of the events has been represented by considering a period of twelve months. From the above table, it is clear that before implementing any recommended strategies, it is essential to carry out the research and development activities. The initial stage of the research requires more investment in order to analyses the competitive strategies to be implemented by the competitors and to identify the best technology that has the potential to reduce the overall costs involved in generating solar energy. The research and development activities are followed by investment in new areas that ensures competitive advantage in the field of renewable sources of energy. The financial strength of the company ensures availability of proper finance for carrying out different strategies. Diversifying the product line facilitates an increase in overall sales as well as ensures improved profitability of the company in the long run. First Solar has been identified to develop alliance with other competitive companies, which has been profitable for better sustainability in the long run. Therefore, merger and acquisition has been identified as an important consideration for effective expansion of the company in the long run. The implementation of the above mentioned strategies requires huge investment and therefore it is likely to have an impact over the financial strength. However, the strategy involves less risk and is likely to be beneficial for the company in the long run. Conclusion The above discussion revealed that First Solar is one of the leading producers of solar energy. The analysis of the mission statement of the company stated that the important objective is to provide clean as well as affordable source of energy. The external analysis of the company has been carried out for understanding the impact of different factors that include suppliers, customers and competitors among others have on the operations of the company. In addition to this, for the internal analysis, SWOT analysis has been used. From the SWOT analysis, it has been recognized that the company faces certain challenges in terms of competition and limited product line, but the company has certain opportunities in terms of innovation and technology transfer. In order to reduce the problem issue faced by the company, alternative strategies have been designed and recommended based on which the company will be able to perform operations in an effective manner. References First Solar Inc. (2013). First solar inc in. Stanford graduate school of business, 1-14. First Solar Inc. (2013). Annual report. Retrieved form http://files.shareholder.com/downloads/FSLR/0x0x742492/f8431f76-04be-4541-aa09-c15c86df92ba/2014_FirstSolar_annual_report.pdf First Solar. (2015). First solar is the global leader in photovoltaic (pv) solar energy solutions. Retrieved form http://www.firstsolar.com/en/about-us First Solar Inc. (2011). First solar corporate overview. Retrieved form http://files.shareholder.com/downloads/FSLR/1395959378x0x477649/205c17cb-c816-4045-949f-700e7c1a109f/FSLR_CorpOverview.pdf Henry, A. (2011). Understanding strategic management. New York: Oxford University Press. Menenberg, A., Lacy, M., & Balayan, L. (2009). Strategic report for first solar, inc. Retrieved form http://economics-files.pomona.edu/jlikens/SeniorSeminars/oasis/reports/FSLR.pdf Pahl, N., & Richter, A. (2009). Swot analysis - idea, methodology and a practical approach. Germany: BoD – Books on Demand. Suntech Power Co Ltd. (2015). Who we are & what we do. Retrieved form http://www.suntech-power.com/menu/about-suntech.html University of Oregon investment group. (2011). First solar, inc. Retrieved form http://uoinvestmentgroup.org/wp-content/uploads/2011/01/FSLR.pdf Zahringer, L. (2011). First solar, inc. strategic analysis report. Retrieved form http://www.slideshare.net/lzahringer/first-solar-inc-strategic-analysis-report Read More