Strategy and Competition - Canadian Solar Incorporation - Case Study Example

Comm. 401 SEC AB Strategy and Competition PRESENTED TO Stephen Hudon INDIVIDUAL MIDTERM CASE ANALYSIS Canadian Solar PRESENTED BY NaderKhazalipour 9470514 May 24th May, 2012 Introduction Canadian Solar incorporation is a leading producer and supplier of PV solar cells in Canada (Ivey, 2010, p.7). This company develops other products and modules that covert sunlight into electricity for its user’s i.e. solar power systems, wafers, ingots and solar modules (Ivey, 2010, p.12). Most of the company’s operation is carried out in China where it produces a variety of products to be used both domestically and commercially (Ivey, 2010p.2). Canadian Solar incorporation is headed by Dr. Qu assisted by other six top management officials (Ivey, 2010, p.8). In 2008, the company recorded revenue of $ 705 million which is far better when compared to 2004’s $9.7 million (Ivey, 2010, p.8). This was attributed to the support that several authorities within the world have given which promoted the execution of the PV technology. Canadian Solar Company has been experiencing losses over the past few years though its revenues have grown by more than 135 percent over the years (Ivey, 2010, p.8). These loses have been attributed to the high competition around the world which have contributed to a decrease in the company’s market share (Ivey, 2010, p.9). The management under the leadership of Dr. Qu is faced with the mandate of turning the losses into profits amid the high international competition and economic crisis by formulating and executing a viable profit plan. External Environmental Analysis No business can operate in a vacuum. Each and every business requires an environment to operate in. After a thorough analysis, the external environment of Canadian solar company consist of the political environment, the technological environment, the social environment, the economical environment, competitors in the industry and the industry itself. The industry According to Porter’s five forces model, Industry encompasses the competitors, the suppliers, the consumers or the customers, technology available and the restrictions available for entry and exit in the industry by firms. The market consists of potential customers who include the domestic users and commercial users. Canadian Solar incorporation produces a wide variety of products such as the industrial and automotive and consumer products (Ivey, 2010, p.6) to suffice the customer’s needs. Political Environment The various authorities in the different countries have greatly promoted and encouraged production of and the technology of the PV cells. Most of the countries across the universe in 2008 and 2009 provided incentives for the development of the technology e.g. China and Canada (Ivey, 2010, p.7). Government incentives and support remain the main inherent factor for the solar industry in the world. Competitors The solar PV industry has been indicated as a speedily growing expanding market filled with a number of strong competitors (Ivey, 2010, p.1). This was due to the low initial capital investment and low technological dexterity and knowledge in making a PV module (p.6). The PV industry consists of the large companies and the small scale companies (Ivey, 2010, p.6). The competitors in this industry can be divided into three categories on the basis of market strength, geographical position and company size (p.6). Suntech, Trina Solar, Yingli Green and Canadian Solar are the main competitors who have their companies based in China. These companies pose a big threat to Canadian Solar’s market share. They use a low cost labor to reduce on the operating costs (p.6). Other international competitors include Kyocera and Mitsubishi in Japan, BP in Britain and Chevron in United States (p.6). Canadian Solar Company needs to establish and implement cost effective production methods and to use the competent sales and marketing staff to come up with innovative ideas. The chart shows the market share of the different companies in the industry Technological environment PV cell requires less know-how in technology to manufacture (Ivey, 2010, p.6). This is the main reason why the industry is filled with competitors (Ivey, 2010, p.1). Due to advancement in technology, Canadian solar company was able to produce other products (p.9). This was to facilitate the increasing demand for solar products across nations. Improved technology of the company has been able to facilitate a silicon recycling process. This would make use of the discarded, unused or broken silicon ingots and wafers in Suzhou and Changshu (Ivey, 2010, 10). Social Environment A company needs to be cognizant of its social responsibility. In trying to improve the company’s brand name, Canadian Solar incorporation has been concerned with the welfare of the ruralites in China (Ivey, 2010, p.12). Economical environment Canadian solar incorporation has experienced losses and decline in the revenues in the recent years. This has been ascribed to the prevailing economical situation in the world (Ivey, 2010, p.4). This world economic crisis greatly triggers fluctuations in the raw materials prices in the world (p.10). This makes the production costs a trifle which translates to high prices and low demand in the world. The prices of PV surged up by 3.50 to 4 US dollars per watt. These prices later dropped to 2.5 US dollars per watt. This was due to the increase in world price of silicon in 2008 after a shortage that occurred in the early months of the year (Ivey, 2010, p.3). As noted, Canadian solar company has experienced a decline in the revenues from 705 million US dollars in 2008 to 395 million US dollars in 2009. There continues to be a growth in the P.V power production over the years and this is estimated to culminate to higher revenues in the future. This chart shows the revenues attained in the three years * 100 million Dollars Internal Environment Analysis The internal environment consists of the personnel, the company finances, the suppliers and the management. After a thorough analysis of Canadian Solar Company, there were strengths and weaknesses that were identified in the different components. Strengths Canadian Solar incorporation has branches in the different regions in the world i.e. China and Canada (Ivey, 2010, p.10). Canadian Solar has a large pool of qualified staff across the world in the sales and Marketing departments (Ivey, 2010, p.8). Canadian company has been able to improve on its technology to encompass recycling of unused and broken silicon. The company provides a wide range of products to the market (Ivey, 2010, p.7). The high capacity of Canadian Solar Company allows it to provide its products to the different markets thus meeting the different demands of the consumers in the different regions. The company operates in a potential market that has gained support from the different authorities in the different countries through incentives (Ivey, 2010, p.1) Weaknesses The company has been experiencing financial losses over the past few years i.e. in 2008 the company had a loss of $9 million and in 2009 the company experienced a loss of $18 million (Ivey, 2010, p.1) The company only relies on the production of solar products and the fate if the company is determined by the welfare of the industry (Ivey, 2010, p.7). The company estimates for the future usage have been imprecise which have led to dearth of supplies. The company has experienced adverse effects from the economic crisis in the world. The fluctuating silicon prices in the have greatly increased the company’s operating costs which have pushed the products prices higher resulting in a reduction in the demand (Ivey, 2010, p.6). Current strategy Evaluation According to Dr. Qu, the company will have to determine its market and closely follow any inexhaustible policies. Canadian Solar Company will have to examine its competitors closely to be able to determine the market (Ivey, 2010, p.13). This could be a good strategy as the company will be able to understand the technologies that are used by the other companies and then come up with better and improved technologies that will out do their opponents such as SunPower Company in US and the Chinese based Suntech who have taken greater strides in technology (p.13). Competition in the PV market has become immense and the limited resources available for the company are not enough to supply for technological improvements in the company. The main challenge that the company faces is the inadequate funds but according to Dr. Qu, the company will need to adapt to the reforms in the market and industry (Ivey, 2010, p.13). The Canadian Solar company management has not formulated plans on how to tackle the economic crisis that they faced and that they may face in future. The management has not come up with a plan on how to diversify their products to stop overreliance on one industry. Recommendation To tackle these situations, Canadian Solar Company needs to adopt a poly-forked strategy that will also encompass diversification in their bid for growth. The management needs to consider the strategies that will drive the company towards expansion in time to come while still remaining in the course of its objectives and goals. Since expansion of any business entity requires financing, I recommend that the management consider how to increase its financing before progressing on with the expansion. Moreover, in creating brand loyalty among the customers, the company will need to strengthen the relationship with the customers. This could be done through good public relations and being involved in cooperate social responsibilities. The move by Canadian Solar Company to partner with Guodian Power Company in China in provision of power to the ruralites in China was a great move by the company (Ivey, 2010, p.12). The company should heighten plans on how to accelerate growth and to protect the reserves available in the bank. Most of the products in this industry are homogenous and the only way to win over the other companies is to differentiate the products. Canadian Solar Company needs to invest in differentiating its products. Finally, Canadian Solar Company may need to invest in marketing communication tools to improve on creating awareness of the products among the consumers. Works Cited Richard Ivey School of Business. 2010. Canadian Solar. The University of Western Ontario Read More