Possibilities of a Solar Firm in Germany - Research Paper Example

Starting a Solar Firm in Germany Table of Contents I. Introduction II. Marketing Environment A. Social/ Cultural Environment B. Legal/ Political Environment C. Economics D. Availability of Resources E. Competition F. Demographics III. Opportunities for Entry IV. Market Existence-Degree Works Cited I. Introduction This paper details an analysis of the marketing environment, the nature of the market, and the opportunities for entry for a new solar firm being contemplated for entry into Germany. Germany is special because it possesses the biggest and arguably the most advanced economy in all of Europe, and by the numbers too Germany has a sizable population, bigger than all other countries in the continent except for Russia. This makes Germany an attractive market for all kinds of goods and services, and that the Germany economy is advanced makes it also very highly competitive and demanding. The sophistication of the economy is in evidence in the way high technology dominates its industries, with cars, chemicals, machineries, and related products constituting the core of its exports to the rest of the world. Outside of Europe too, in the context of the larger world economy, Germany’s economy stands proud as the fifth largest in the world. The sophistication of its products on the other hand also imply one, the presence of a highly technical and highly educated and intelligent workforce, and two, a sophisticated economy with serious and equally sophisticated energy needs. By way of quantifying the economy, in 2013 it was valued at $3.227 trillion at purchasing price parity, making it officially the sixth largest economy in the world. Its per capita GDP on the other hand is pegged at $39,500, making it number 29 in that area in the whole world, and highlighting the prosperity of the country and its citizens in general. The country also boasts of a labor force that is entirely devoted to industries and to services except for less than two percent of about 44 million German workers. That 1.6 percent of the workforce toils in the agriculture sector. Industry makes up about a quarter of the labor force, while the rest, or close to three quarters, are involved in services (2; 9). Other indicators of economic health, such as economic freedom, also indicate a German economy that has been on the up and up for a long time, and in a way has never been in better shape as now, with the country achieving its highest rating for economy freedom historically in 2014. Moving back twenty years into the past, Germany was deemed as having an economy that was moderately free, but has since moved into the category of mostly free countries in the past eight years, advancing in its ranking consistently throughout that time, to achieve its highest rating at present (13). Elsewhere the prognosis is that Germany has moreover done better than its neighbors in Europe, notably Italy and France, whose economies have floundered and stagnated of late even as Germany continues to propel forward with modest gains in its economy (7). The general prognosis is that Germany is bound to make a successful economic recovery this year, from rocky economic fortunes that affected not just the country but many other countries in Europe, and certainly the most dominant and biggest European economies as well. Growth was positive in the most recent quarter, and all signs are towards the sustainability of that achieved growth moving forward, even if some problems continue to derail the recovery. Those problems include the contagion from the crisis in Ukraine, and the general weakness of the entire economy of Europe. The crisis in the Ukraine, for instance, threatens to undermine the political stability of the entire continent and threatens to destabilize the peace that had been won in the recent past, while the overall weakness in the economies of Europe threaten likewise to derail the growth that has been achieved in some sections of Europe, notably in Germany. The thinking is that Germany, given its economic heft and the considerable magnitude of its achieved growth, will be able to hurdle the obstacles and continue to grow economically in the coming quarters (Deutsche Welle). All these signify an economy with serious energy needs, and one that this paper hopes to explore in the context of introducing a new solar firm into Germany (3; 11). II. Marketing Environment A. Social/ Cultural Environment The German society is predominantly of German descent, with about 92 percent being German, and about 2.5 percent being of Turkish origin, and the rest made up Spanish, Greek, Polish, Serbian, Croatian, Russian and Italian descended people. German is the official language, with Christianity being the predominant religion, at about 68 percent, divided equally between Protestants and Catholics. About 28 percent have no religious affiliations, while about 4 percent of the population are Muslim. The country’s population is pegged at about 80 million. About 62 percent of the population are between the ages of 25 and 64. Given these social underpinnings, one can see that the dominant social structures are Christian and German in nature, permeating language, the way people relate to each other, the way they relate to other races and religions, and the worldviews that are inherent in the Christian theology and ways of perceiving the world. In this sense its social-religious underpinnings share much with the rest of Europe, even if the Protestant flavor of Christianity in Germany is very pronounced, and in reference to which the influence of the Catholic church is watered down by both the strong Protestant representation in the general population and the equally strong representation of those who are not aligned with any religion, making up more than a quarter of the entire population and rivaling the membership of both the Catholic and Protestant churches. The sway that Islam has on the social and cultural fabric of Germany, on the other hand is weak, given that Muslims make up a very tiny sliver of the entire German population. This social fabric moreover has a strong German flavor that spills over into aspects of German culture, which have a strong emphasis on efficiency, rationality, science and engineering, and rigorous rationality (2; 9). On the other hand these very same German cultural and social characteristics make Germany open and receptive to such things as renewable energy and the prospects of powering their many industries with solar power for instance. The cultural and social environment is one that has ever embraced technology and industrialization as a way of life and as a way to continue to propel the German economy through time (5). That the country nowadays leads the world in solar power adoption and technology development, and in adopting renewable energy technologies in general, attests to the receptivity of the German cultural and social fabric to these technological innovations (8). B. Legal/ Political Environment The legal and political environment is one that is characterized by internal stability and a track record of the political and legal systems being conducive to spawning the remarkable success story of Germany in solar power and in renewable energy in general. That internal political stability is characterized by mature and entrenched political systems and the strong adherence to the rule of law. These internal stabilizing forces within the political system of Germany is reinforced from the outside by Germany’s active participation and leadership in major European bloc organizations that secure the peace and continue to engage other parties to address political issues within the region, typified of late by the crisis in Ukraine. The legal systems on the other hand are likewise mature and have brought about the continued march to progress of the German economy and its continued excellence in the adoption of solar and renewable technologies. This analysis culls insights into the political and legal systems of Germany from the fruits of those systems, namely in an economy that continues to shine amidst general weakness in the European economy, and in the success and excellence of its energy program that has become the gold standard in Europe and in many other parts of the world in terms of adoption and in the successful replacement of older power technologies with sustainable energy sources like solar. The overall take is that moving forward, even the political crisis in Ukraine will not be able to destabilize the mature internal legal and political structures in Germany, and this augurs well for new entrants into solar and other industries into Germany (2; 9; 8; 5). C. Economics Reports that Germany have forged ahead with sourcing their power requirements from renewable sources, including a heavy reliance on and excellence in solar power and solar power technologies, attest to both the receptivity of Germany’s economy to high technology in power generation, and attests too to the potential of the German economy to continue to find new ways to grow moving forward. In terms of being able to accommodate new entrants into the solar industry, the opportunities are there, and certainly the economics of solar industry participation are conducive to making profits for those who are able to excel and to innovate in this market. This of course presupposes that the new entrant is bringing to the table some unique value propositions to differentiate itself from the competition. The economics are complex but favorable to the most excellent players in the solar space, and certainly for those who are bringing in new technologies, innovations, capital, or access to other markets the economics of Germany’s renewable energy sector has space to accommodate new entrants. On the other hand, the flip side to this is that the economy is characterized by an extreme environment of competition, where present players are the best in their particular lines of expertise and are running at breakneck speed to bring new innovations to the market (9; 8; 5). Looking at this from another vantage point, from the point of view of the general state of the German economy, one can see that in all of Europe Germany’s economic prospects are probably the most favorable to outside investors coming in with new innovations and new products. The market is there, and the sound economic foundations of the country guarantee some measure of financial success for those who are able to offer value in solar over and above what current players are already able to offer (3; 11). The thinking is that having possession of the largest and arguably the most technologically-sophisticated economy in Europe, Germany is in a position to absorb new entrants who are able to further develop and enhance the general competitiveness of its energy market and its solar energy programs in particular. While it is true that the German economy is poised for some slowdown in its growth trajectory in the immediate future, the long-term economic prospects are good, and so the economics of new entrants in the solar power space are good enough for new players who may want to explore and to gamble into entering the German market for solar power (2; 9; 8; 5). Going into specifics, the short-term economic prospects of Germany are good, but relative to the peak at present, is expected to taper a bit due to slowing growth in the near term. On the other hand, compared to historical economic prospects, one can say that the economic environment in Germany has never been better, on measures such as economic freedom, and also measures of absolute growth. Near term prospects are somewhat dimmed to by the uncertainties in the economic situations of neighboring countries in Europe, which obviously can impact Germany’s own economic prospects moving forward, albeit in magnitudes and extents that are less in comparison to the impacts of those same contagions on smaller and less developed economies in Europe. On the other hand, the long-term rosy prospects for renewable power generation and for the German economy as a whole means that the economics of long-term investments in solar power generation and solar technologies in Germany are sound (2; 1; 11; 3). D. Availability of Resources The integration of the German economy with the rest of Europe and its leading role in the European economy means that Germany has access to a wealth of resources that new entrants can then leverage to improve their prospects of success entering the German market. Internally, and with regard to the solar industry, the high concentration of firms with excellent research and development and products that are tied to the solar industry means too that new entrants have access to those products, as well as to talent and to needed support infrastructure and resources to compete in the German market in the long term. If the intention is to use Germany as a base from which a new firm is to launch a global solar business, then too Germany is able to make available those same internal resources in bountiful amounts to improve the prospects of success of new entrants. Thirdly, from a point of view of resources availability in comparison with other countries and geographies, the high technological sophistication and intense focus of the German home market on solar technologies guarantees that new entrants have the best possible access to resources because they are widely available and form part of the economic system and research and development system and culture of the country (2; 1; 8; 5) E. Competition From the previous analysis one can see that competition is understandably intense, because of the simple fact that present players in the German solar market are pioneers and leaders in their field, being technologically at the cutting edge, and being at the cutting edge too in terms of deploying solar and renewable energy technologies on such a massive scale and on such a level of sophistication as has been achieved by the German economy. Year after year has seen Germany break world records in terms of technological aspects of solar, and in terms of sourcing power from renewables as a percentage of total generation, which of late has reached more than three-fourths of total energy needs for the country, an impressive feat. Being technological leaders and having massive experience at home, current players have massive home court advantage so to speak. New entrants will have to match or surpass the technological sophistication and the market knowledge and expertise of entrenched players. Moreover, the speed with which Germany has moved with solar means that new entrants will have to hit the ground running, just to catch up. Germany being a center of excellence in solar and in renewable technology, and being the most technologically-sophisticated country in all of Europe and arguably one of the world’s best in these terms, it is understandable that potential new entrants will have to come up with unique value proposition that current competitors are unable to provide or to match. At any rate competition in Germany is intense in solar, and is expected to remain so, weeding out weaker players within and probably successfully keeping weaker players wanting to come into Germany from the outside (5; 8; 2). F. Demographics Per capita GDP is one of the highest in the world, and the working age population makes up more than 60 percent of the entire population, making the country demographically very attractive for many kinds of high technology products and services. The sophistication of the average German consumer translates to solar being a very marketable technology that people can understand and buy into. The affluent and predominantly productive demographic of the German population constitutes a ready market for solar products and services, that a new entrant can target. The dominant demographics in Germany is receptive to solar and is a natural market for solar (2). III. Opportunities for Entry There are opportunities to enter the German solar market as a new firm via the introduction and pursuit of new technologies that improve on solar cell efficiencies and on the materials that are used to make solar panels, among other things. In short, entry opportunities exist in the areas of innovating on solar technologies over and above what the German companies are able to do at present and over and above what their research and development efforts are focusing on. Some example areas are those that bring down solar costs by bringing down component costs, with research into new and cheaper materials, and the like. The way to enter the German market would be to focus on opportunities to improve on and to innovate on what is already at present, to hopefully leap frog what is already available and upend the current economics of solar power generation in Germany (12; 10). IV. Market Existence-Degree What is clear from the preceding discussion is that the German market for solar technologies is very robust and very advanced, with many players contributing to make Germany a showcase and a center of excellence for solar energy research and deployment worldwide. The established nature of the market means that new entrants will have to hurdle a high bar in terms of being able to enter the German market and compete with German firms on even terms (5; 8; 2). 1 Works Cited 1 Buell, Todd. “German Economy Will Grow at Slower Tempo, Says Bundesbank”. The Wall Street Journal. 19 May 2014. Web. 29 May 2014. 2 Central Intelligence Agency. “Germany”. The World FactBook. 2014. Web. 29 May 2014. 3 Chace, Zoe. “Germany’s Economy Is Doing Well- And That’s Bad for the Eurozone”. NPR. 29 May 2014. Web. 29 May 2014. 4 Deutsche Welle. “2014- year of growth for Germany?” DW.de. 2014. Web. 29 May 2014. 5 Hales, Roy. “Germany’s Solar Development Continues”. Clean Technica. 2014. Web. 29 May 2014. 6 Jolly, David. “Euro Zone Recovery Is Chugging Along, Driven by Germany, a Survey Says”. The New York Times. 22 May 2014. Web. 29 May 2014. 7 Jones, Claire, Hugh Carnegy and Guy Dinmore. “Germany’s economy powers ahead as France and Italy fall behind”. FT.com. 15 May 2014. Web. 29 May 2014. 8 Kroh, Kiley. “Germany Sets New Record, Generating 74 Percent of Power Needs From Renewable Energy”. Climate Progress. 13 May 2014. Web. 29 May 2014. 9 Princeton. “Economy of Germany”. Princeton. edu. 2014. Web. 29 May 2014. 10 Richardson, Jake. “$10 Million for Concentrating Solar Power Technology Granted by US Energy Department”. Clean Technica. 2014. Web. 29 May 2014. 11 Spence, Peter. “UK knocked off top spot: Germany is now Europe’s fastest growing economy”. CITY AM. 22 May 2014. Web. 29 May 2014. 12 Spotts, Pete. “Solar power breakthrough hints at cheaper panels for more roofs”. The Christian Science Monitor. 5 May 2014. Web. 29 May 2014. 13 The Heritage Foundation. “Germany”. 2014 Index of Economic Freedom. 2014. Web. 29 May 2014. Read More