Strategic Management of First Solar Incorporation - Case Study Example

Strategic Management 15th April, Strategic Management: First Solar Inc. Introduction: First Solar Incorporation is an Americancompany that specializes in manufacturing stringent photovoltaic (PV) cells, modules and solar panels designed for large-scale gird or non-grid solar power plants. A world wide leader in PV energy solutions, it provides state of the art utility-scale power generation and fuel displacement Hybrid Systems, striving to achieve environment, economic and budget friendly solar electricity worldwide. The company operates in two segments: i.e. designing, manufacturing and selling solar modules (component segment) and providing PV solar systems with services including project operations, finance, maintenance, engineering, procurement and construction (systems segment). Inaugurated in 1999, the company’s 16 years of existence has proved remarkably beneficial in the global energy mix, crafting ultra-modern ideas that have contributed to resolving present day energy needs such as supply reliability, fuel cost volatility and overall conserving the earths scarce natural resources and fossil fuels with its exclusive cadmium telluride (CdTe) film technology, successfully achieving the undermost leveled cost of electricity (LCOE) in the entire industry. They also extraordinarily lowered manufacturing costs to the bare minimum i.e. less than a dollar per watt, another record breaker, and a new goal limit set for capital efficiency. (Citation, year) This success, although seen to only further excel, faced new rivalries in 2011, hence leading to the gradual decline of their electric empire in the solar module industry. Specializing in the production of crystal silicon (c-Si), these emergent companies such as Trina, Yingli and Suntech raced to not only reach but overcome these newly set standards, rapidly reducing overall manufacturing costs and increasing output. In 2013, Suntech replaced First Solar acclaiming the number one position of modules worldwide. Several strategic issues had surfaced due to which First Solar led to its downfall. Of the two major reasons, the first is that these new entrants began selling crystalline-silicon solar panels for less than a dollar, creating a price clash. Secondly, the silicon solar panels proved more efficient than the thin-filmed cadmium-telluride solar panels hence consumers preferred the newer products over theirs as they were getting better quality and reliability for the same price. Although a major part of their profits were accumulated from their solar power plants and installation, these low budgeted and better quality Chinese panels forced the American solar monopoly to shut down several factories and downsize both its employees and work operations. Analysis of the Company’s Mission Statement and Objectives “First Solar is committed to improving the global environment and the health and safety of our employees, customers and communities.” The company’s mission statement states how they strive to build everlasting value by creating innovative technology to power the world with clean and affordable solar energy. Producing cost effective solar energy solutions which displace fossil fuels and other conventional energy solutions Managing the Product Life Cycle () in a continuously sustainable cycle that constantly filters hazardous air pollution and eradicates solid waste from the environment, and Striving for constant improvement in our environmental, health and safety management systems and in the environmental quality of our commodities and processes These are the company’s defined goals; following the first of the four generic competitive strategies by Michael Porter i.e. Cost Leadership which is when the company aims to be the lowest cost producer or distributor within its industry. Production costs are also cut to its bare minimum, which can be achieved by large scale production and economies of scale, thus creating competitive advantage. The company also applies product differentiation strategy to gain an upper-hand over its competitors by providing commodities and characteristics they don’t have for e.g. streamlined production process giving cost and watt advantage over competitors, more knowledge and experience of the field. The current strategic goals for First Solar are market diversification and operations expansion. The company has sturdy business operations in Germany and France, and focuses on expanding to other continents by geographically diversifying internationally to prevent hurdles of expansion and sales that may arise in European markets. Before growth opportunities decline in Europe, they intend on establishing a base in China and India. Along side market diversification, they also intend on increasing production processes, capacity, output and sales to increase company growth and revenues, decrease factory costs and establish economies of scale. Operations expansion also includes working not only on solar panels and installation but extending the production line to enhancing existing plants and contributing research and development in power plant creation. Other long-term strategic planning includes resource allocation and distributing resources to Asia, the Middle East, Africa and Latin America Increased capital and factors of production (especially human resources) to reduce solar PV generation costs Optimizing design and engineering of solar PV generation Enabling tested solutions to integrate harmoniously within the entire markets electricity ecosystem Establishment of joint ventures and acquisitions with strategic partners and relationships with potential policy makers and customers Competitive Analysis Figure 1: Rivalry Summary FORCE STRATEGIC SIGNIFICANCE Internal Rivalry High Supplier Power Medium Buyer Power Medium Entry and Exit Medium Substitutes High Complements Low First Solar, like any other company, faces competition within the excelling solar energy industry. Figure 1 gives an overview of the competitiveness the company faces along side its ranking from a scale of high to low. The factors mentioned above indicate a consistent growth rate of the solar energy industry which means intense rivalry upcoming for First Solar. However demand for solar energy is increasing at a slower rate due to poor climate conditions, meaning there is ample supply of panels available. Its two top rivals are, Sharp Corporation (SHCAY) and Suntech Power-holdings (STP). Figure 2 gives an overview and direct company comparison between First Solar (FSLR) and Sharp Corporations (SHCAY). Figure 2: Direct Competitor Comparison Company Details FSLR SHCAY Market Capital 6.39B N/A No. of Employees: 6,060 50,253 Quarterly Revenue Growth (yoy): 0.31 -0.06 Revenue (ttm): 3.39B 23.72B Gross Margin (ttm): 0.24 0.18 EBITDA (ttm): 669.50M 1.57B Operating Margin (ttm): 0.13 0.03 Net Income (ttm): 396.92M -110.48M EPS (ttm): 3.91 -0.07 P/E (ttm): 16.30 N/A PEG (5 yr expected): -29.43 N/A P/S (ttm): 1.81 N/A External Analysis of the Competitive & General Environment Sustainability of solar energy means transparency of work, social responsibility, corporate governance and environmental friendliness. First Solar focuses on a number of sustainability performance techniques, implicating Green Manufacturing; a business strategy where by the company can maintain profits while adapting working techniques that are environment friendly. Doing so, they’ve successfully reduced the wastage of natural elements i.e. water, waste and carbon through upgrading the modules manufacturing, efficiency and effectiveness, which in-turn lowered these elements throughout operational processes. Resource conservation is reassured through its PV recycling program, following the management life cycle thoroughly for its goods and services. (Figure 3 link) The company’s PV plant contains various environmental characteristics that follow its corporate, social responsibilities and business practices that offer eco-efficient and eco-friendly energy solutions. Technology is improved to ensure higher social, economic and environmental health and safety through eliminating over usage of electricity and releasing toxic chemicals. The company owns the strategic assets of financial, physical human and organizational resources (Tangible assets) and intellectual, skilled and technological resources (Intangible assets). It contains the core competencies of low-cost production, long-term contracts and increased sales of highest watts per module. Along side this, the company therefore benefits from the following opportunities. SWOT Analysis: Stage 3 OPPORTUNITIES Expansion of Manufacturing Capacity: First Solar can construct new plant and machinery possibly in areas that have a high rate of unemployment. Doing so, they may enjoy the perks hiring low-waged yet skilled labour to meet the market demand for their solar panels. Detroit, Michigan is one of the most highly populated cities that suffers from a high unemployment rate hence a factory can be inaugurated there Growth of Photovoltaic Industry: The PV industry is initiatory as the industry is newly discovered hence First Solar has the edge of taking advantage by entertaining increased demand through hard work and efforts Acquisition of an Inverter Producer: First Solar can create a coaction with an inverter producer which would help achieve lower manufacturing costs and inexpensive power However having said this, the company still faces some potential threats. SWOT Analysis: Stage 4 THREATS Third Generation Solar Panels: Due to the rapid pace of advancement in technology and research, third generation solar panels (such as silicone panels) will soon be launched, making these thin film solar panels become outdated and obsolete as the newer solar panels will take its place of preference. These panels have the power to be more efficient and effective, hence driving First Solar out of business. Threat from Competitors and Substitutes: The worlds PV industry is crowded with over hundreds of solar panel companies and providers, and grows yearly, hence competition for First Solar not only becomes more intense but also very challenging and competitive. These newly enhanced innovative ideas and propositions of advanced energy solutions from new entrants will take over the current thin filmed panels being used. These improvements include the introduction of solar biomass, thermal, hydro, wind, tidal and geothermal developments. Lack of government subsidies or other incentives: First Solar’s presently makes its sales with the help of government provided incentives and subsidies, without which increased sales ratios and profit margins may drastically decrease. This dependency can heavily backfire if they fail to abide by government regulations and policies; hence the company is bound to meet up to the negotiation to prevent government withdrawal. PEST Analysis is a business measurement tool that helps define the organizations political, economic, social and technical factors used to assess its market position in it’s specific industry. This is done the macroeconomic environment and the solar industry’s outlook in terms of its various components. Political Factors: This refers to new policies, regulations, tax incentives, etc. dedicated to contribute and enhance industrial growth that ensures the recycling and reutilizing of scarce resources, reducing harmful chemical and gas emissions and pollution, and adapting to seasonal climate change. Political developments such as Energy Improvement Extension Act, American Recovery and Reinvestment Act and Emergency Economic Stabilization Act have been announced and reinforced in order to accomplish these goals. Economic Factors: Economic functioning, steady stability and continual growth are essential characteristics that determine outcome and performance of the solar energy industry. Indicators of the macroeconomic environment consist of price indices, unemployment rates, GNP and GDP. Prices of gasoline, electricity and factors of production along with their fluctuations are also taken into consideration. Social Factors: The external environments social factors include rate of population, unemployment figures, environmental awareness and the various benefits of the new technology. This includes the basic understanding and usage of the earth’s scarce resources, the positive and negative impact and contribution to climate variations from the common negativities of air and water pollution, deforestation, burning of natural resources and global warming. Two forces of social environment influence the growth of new reviving energy industry i.e. increasing demand and environmental issues that may arise due to varying circumstances. Technological Factors: This point includes the rapid change in technology and its implications on the industry and economy. Research and development processes, innovation techniques and introductions and overall technological changes are common among this area, particularly in the field of solar energy technology which is growing at a faster pace on a greater scale. Internal Analysis of the Company SWOT Analysis: Stage 1 STRENGTHS Cost-per-Watt Advantage: FSLR was the first to introduce solar panels for less than $1 per each watt, a record breaker for the cheapest thin film product in the solar market Replicable Production Facilities: Streamlined production process is easily cloned due to its easy step by step procedures, which allows First Solar to efficiently and effectively reproduce and stimulate a favorable response to increasing demand for their goods and services Long Term Supply Contracts: Effortlessly forecasted sales enable planning to become competent and convenient to cater to the rising demand schedule for their commodities Good Cash Balance: the Company’s stable funds allow them space to invest in time and research to develop new and improved technological discoveries. It also allows them to predict better about their demand and supply schedules and how to respond to them accordingly. SWOT Analysis: Stage 2 WEAKNESSES Raw Materials Suppliers: The raw materials and factors of production used are obtained from few suppliers. This although may be an advantage also has the drawback that if for some reason a supplier is unable to provide, due to limited alternatives, any disruption occurring in the supply-chain could ultimately harm the company’s production line and overall output and sales. Dependence on Cadmium Telluride: These two materials used in their products is not only costly but highly intoxicating and hence injurious to environmental and human health. For this purpose governments passed strict rules and regulations upon its consumption and utility, thus restricting and limiting FSLR’s choice of factory regions. The solar panels manufactured by them rely on their usage without which production may be ceased leading to eventual bankruptcy. Porters Five Forces model states 5 competitive forces, taking into consideration the profitability and competition stamina of the business within its industry and against its rivalries. Supplier Power: First Solar’s module consists of numerous different raw materials and components which are mandatory for its completion including cadmium telluride and sulphide, front glass with thermal conductive oxide coating, photo resistant lamination, black tempered glass, cord plate and cap, solar connectors and lead wiring. Limited amount of suppliers impose highly important to gain threatening power over other suppliers which allows the increase of prices. However the imbalance of equilibrium between exceeding demand and shortened supply can lead to a shortage of raw materials. This should be avoided so as to avoid production disruptions that may assist in unsatisfactory contractual agreements. Buyer Power: this has been relatively strong as products vary between cost and watt efficiency and effectiveness differences. First Solar contains a substantially widespread and stable customer base both nationally and internationally which has the drawback of exposing them to threats such as unnecessary regulatory and political issues and implied taxes of their respective currencies. Recreating and reviving customer data base contracts may decrease profits and revenue margins due to the increase in buyer power in terms of rate share. Competitive Rivalry: First Solar, with the emergence of rival competitors, has lost its power over the solar industry due to their products replicating their key features of quality, price and innovativeness. Buyers and suppliers would once solely purchase and provide from First Solar however now they have the availability of choosing among many other (rival) options. Threat of Substitution: the company has been greatly affected by the rapid popularity of other reviving electricity generation methods as these methods have outdone their thin-filmed solar panel technology with advanced crystal-silicone and solar thermal PV technology which produce lower carbon emissions and higher electrical levels. These new and enhanced commodities will lower the demand of First Solar’s products. Threat of New Entry: Barriers of entry must be created in order to maintain number one market position as a market leader. This includes the extensive need for research and development which comes at a great expense and cannot be achieved by start-up companies with low investment. Competitive commodities produced at competitive prices such as that of First Solar are essential to successfully prevent rivals in exceeding their expertise. Due to the slack of subsidies and incentives from certain governments, the prices of entering the solar market will extensively appreciate, again blocking start-up companies from emerging. It will also become less desirable for start-up organizations to venture in this industry, which safeguards First Solar/s base. Alternative Strategies & Recommendations Certain strategic recommendations can be made to ensure the uprising of First Solar after its decline phase to reboot the company to where it once peaked. Firstly, the company should continue to expand its business operations overseas by opening new factories in areas that seem suitably fit i.e. where business practices comply with government regulations lawfully and properly. They should continue to produce domestically and internationally and refine and rejuvenate sales and revenues through adopting new and innovative business techniques and practices in order to maintain market share. Countries such as China, India and Saudia Arabia are interested in adopting solar energy technology due to its ample advantages and hyping growth and installation. First Solar has been highly preferential amongst its competitors due to its long-term association and standing in the solar energy field, and hence should lay its foundations and build its platforms in these rapidly advancing countries. This will in-turn increase sales, revenues, international funding and investment in its international branches whilst creating more recognition and popularity of its name. The company will become less vulnerable to possible negativities of market risks and threats from potential contenders. Solar companies in general have faced and continually face insecure and unstable government and business policies in regard with government subsidies and incentives. For this reason REC legislatures intervene to provide more stable and risk-free markets for solar energy both in the U.S and globally in all its outer stations by making Renewable Energy Portfolios obligatory. This will also increase the demand for PV to increase as it has been over the years. Resource and development is highly important and should be devoted ample time and attention in order to stay one step ahead of other competitors. Mainly this should be done to unravel better alternative materials that may replace old practices as their current material of cadmium telluride will soon become obsolete; and to overcome the biggest drawback of the industry i.e. repetitiveness. First Solar has already successfully discovered how to achieve its competitive advantages of lowest cost of production and lowest prices, sole provider of thin film solar panels and leader in gross profit margin. Competing on price should only carry the company so far, so other competitive advantages must be found and adopted. Further more, First Solar must be well prepared and equipped for strong competitive rivalries who’ll aim to overachieve and cross the high bars set by FSLR. Their third film is slowly going out of date due to the emergence of c-Si and thermal solar paneling therefore they must quickly react to this in order to keep their organization afloat and to remain in the lead of resource and development research. New high competitive advantage can be achieved through finding the ultimate solution to solar technology reoccurrence. Mergers and Acquisitions opportunities should be taken into consideration to benefit two important attributes; firstly to take advantage of existing and new found capabilities and secondly to benefit from intellectual proprietor rights to reserve solar energy. These factors are sure to abide by the organizations mission statement, long-term and short-term goals and objectives with thorough consistency and abidance. They will help overcome the struggles the company is currently facing and will lead to sustainable competitive advantage. The feasibility of this preposition is adequate in terms of political and organizational factors. Implementation Plan Implementation can be done through overcoming all the current and future problems that exist or may occur in the near future. Market implementation is the process that transforms market strategies and plans into marketing actions in attempt to accomplish strategic marketing objectives. This means to not only do things correctly but doing the right things to begin with as firms that have faster and better execution will eventually win the race in their respective industries. This should be carried out extensively and cater to managers introducing decisions about target marketing and segmentation, branding, packaging, pricing, promoting and advertising, generating (sales and output) and distributing. This can be achieved through consulting strategic agencies who qualify in providing professional guidance and advisory about production and inventory levels, product design, financing, funding and cash-flow strategies. This phase involves the design and management of systems to attain improved and proper of its human resources, structural design, technical processes and scarce yet crucial resources to collectively achieve the organizations goals, missions and objectives. This process includes each divisional department and areas of business including institutionalizing of strategies, setting proper organizational environments and climates, developing appropriate operating plans and organizational structures and finally reviewing the implemented strategy. Boston Consulting Group (BCG) approach allocates strategic business units (SBU’s) according to the growth share matrix. Looking over FSLR’s BCG matrix, factory outlets of various countries have been designated to the four divisions of the matrix. Starting with stars, these are high share business products which require high investments to finance their accelerating growth rate. The United States, Germany and Spain are potential stars for FSLR. Cash cows are low growth but high share business products which are established and successful strategic business units that require low investments to retain their market share. For this reason, they generate good revenue which the company then utilizes to pay for its utilities and expenses as well as pillar other SBU’s that require more funds for financing. Germany and Spain are forecasted cash-cows for FSLR, while Japan and the U.S. are expected to experience higher market growth rate. Question marks are low share business products that are wary and doubtful of their reliability of duration and their profitability and they require a good amount of cash to hold their shares (and further to increase their share value). The company must therefore deliberate over which question marks to further invest in and transform into starts and which to discard and sell out. India, China and France are current question marks out of which France is partially skeptical but China and India on the other hand have a high probability of converting into full-fledge stars. Dogs are low growth and low share products that generate enough money to only provide their basic necessities and requirements. They are not very promising in larger cash generation and hence are not given much importance and are strategically forgone as they are not worth the investment. Currently, FSLR has no examples of dogs in its matrix which is a positive sign for First Solar. Citations: First Solar Official Site https://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CBsQFjAA&url=http%3A%2F%2Fwww.firstsolar.com%2F&ei=VuUvVYS2D9LLaO6pgMgO&usg=AFQjCNExz6X0uZpHAS1XPHJmNpO--AYdQw&bvm=bv.91071109,d.d2s Kotler, P., & Armstrong, G. (2009). Principles of Marketing. Englewood Cliffs, NJ: Prentice Hall. . Figure 2: http://finance.yahoo.com/q/co?s=FSLR+Competitors Strategic analysis report Figure 3: http://www.firstsolar.com/~/media/images/sustainability/lifecycle_looped_graphic.ashx Read More