To be able to help GREENoneTEC management to develop the company, we need to analyze the product and company first. The company is part of the solar industry and went from a one-man business into one of the industry leaders in manufacturing flat plate solar thermal collectors for water heating. In 2003, Kioto became GREENoneTEC’s sister company by manufacturing photovoltaics modules. The plan was to exploit all opportunities of the market.
GREENoneTEC vision is that ”the sun is the most sustainable resource” and the goal is to make it available for as much users as possible by providing solar collectors with technology standard. The plan is to stay ahead from the competition by spending the budget on research and development. Another company focus is regarding it’s large-scale industrial production. That assures a high product quality and optimizes resources, which are the main policy of the company. They maintain an exportation rate of 85% worldwide and have several different products.
The company is certified ISO 9001, it meets requirements for quality management systems. This benefits the company and proves his effectiveness by using the best methodology. They also praise environmentally friendly production; they have at heart the corporate social responsibility. For example, they use sustainable resources, less packaging and energy-efficient production. They go beyond the mandatory responsibilities to create legitimacy with their environmental policies. Social responsibility is also important for them, they have strong health and safety policy.
Threw out the following pages, we will provide a guideline to be able to help GREENoneTEC’s management. We will be talking about different strategic concepts, tools and theories. To be able to guide the company’s management, we will analyze five important concepts: company challenges, the solar industry, competitive advantages, competitive threats and future investments. We will now get started with the main challenges that GREENoneTEC is facing.
Like many European companies in the solar market, GREENoneTEC is facing some challenges since it’s beginning. The most important one is the arrival of new players from China who offer their cheap products. These Asian low-cost competitors encroach all the solar market with approximately prices 30 percent below local market standards. In Germany, 70 percent of the solar modules come from China. All of the high subsidies that they receive and their low cost labour are some of the reasons that explain their growth on the market. Furthermore, the European market represents a good opportunity for the Chinese players since there are no tariffs for them in Europe. Therefore GREENoneTEC has to hold its strong position on the European market and maintain its position of innovation leader in the industry in order to stand out in a changing environment where Chinese companies are dumping prices and destroying the competition.
Another relevant challenge for GREENoneTEC would be to find new customers outside of the traditional heating industry. Now a lot of companies in this industry produce collectors themselves without partners and they deliver 60 percent of newly installed collectors in Europe. Thereby our company could perhaps rethink its business model to find new opportunities and new potential customers, like this big installation of solar modules in Saudia Arabia in 2012.
To get the Austrian solar thermal market back, GREENoneTEC need to reduce the prices of its products. Indeed most of the solar systems in Europe suffer from a problem of over-engineering that explains its higher price. The best way to face this challenge is to identify and adjust the cost drivers in the value chain. Then the company can invest in R&D to revise the conception of solar systems and focus more on the simplicity in order to reduce the costs and then the customer price.
Finally, we can point out another main challenge for GREENoneTEC that is the rise of raw material costs which have extremely increased since 1995 (the price of copper had increased by more than 150 percent in 16 years for example). Thus our company has to deal with this increase by looking for opportunities to reduce the costs of production. It can play on economic scale, searching new suppliers less expensive or even changing the conception of its products with different raw materials.
We can notice that GREENoneTEC is facing challenges related to the Asian competition, to the search of new customers and to the lowering of its costs of production. The company needs to confront these challenges to stand out from the other companies on the solar market and to ensure its permanence.
The solar industry is divided in three main markets: the European solar thermal market, the Chinese market and the market in other world regions. The industry is segmented in two main types of solar thermal collectors, which are evacuated tube collectors (80 per cent on average of the worldwide newly installed capacity in 2010) and flat plate collectors (20 per cent on average). This industry is characteristic of technology intensive industries with their central innovation: solar thermal water heating which radically reduces costs. They can also count on experimented installers.
Each customer adopt and have specific collectors, as for the competitors they imitate, for example Chinese product do so but with inferior quality. Companies who perform in this industry need important capital to enter the market because of the high costs of production, but apart from the big competition, the entry and exit barriers are passable. The European market has the biggest market size for thermal collectors with Austria in first position and Belgium far behind in second position.
Greenonetec was the first flat plate collector producers in 2012. The industry had been facing a declining home market despite of the rise of raw oil prices between 2009 and 2012 due to government subsidies. However after that the German government decided to discontinue its solar thermal energy subsidy scheme in 2010, the market dropped a lot and Austria faced an important decline of its solar thermal collector. Fortunately, a European Commission Directive plans actions so that the solar thermal industry would expect an average annual growth rate of more than 15 per cent.
The Chinese market is really exceptional and it had outgrown the EU market by more than 16 times. China had the biggest newly installed solar thermal collector area in 2011 (57 000 000 m² against EU with 3 519 489 m²). There are three principal players: Sunrain, Himin and Linuo Group. They were the first three evacuated tube collector producers in 2010, and GREENoneTEC was only the seventeenth producer.
Unlike the European market, the growth in solar thermal systems is more due to natural demand than to subsidies. Indeed there is a high domestic market demand and a lot of Chinese cities decided to promote the installation of these products on public buildings. The Chinese industry planned to increase its export business in Europe, notably in Germany and Belgium. Even if their costs of production are lower than in Europe, Chinese players represent a strategic groups because they follow the same strategy than the European players (they aim their market with the same product range).
The solar thermal market in other world regions is not major. Even if the United States has a high development potential, there is a strong competition from cheap natural gas and high price differences (solar water heater is more expensive than an electric or gas water heater), and there is a lack of trained installers.
Concerning the Product/Market grid for the companies competing in the solar industry, they start with a market penetration and in order to grow they need to aim a market development characteristic of present products (solar thermal collectors) in new markets (USA, South America, Africa, etc.).
Now let’s analyse Porter’s five forces model to determinate the attractiveness of this industry. As we saw before there is a rivalry among competing sellers, mostly between The European Market dominated by GREENoneTEC and the Chinese market dominated by Sunrain, Himin and Linuo. Chinese products are cheaper than European products but the products are imitation with inferior quality. China imposes tariffs on European imports unlike Europe. There is a real power for the suppliers on the market. China has the lowest cost of raw material and his player Sunrain represents the first evacuated tube collector producer of the world. In Europe, GREENoneTEC is the first flat plate collector producer of the world. The Chinese companies are located more and more in Europe whereas there aren’t European suppliers on the Chinese market yet.
Concerning the threat of Potential entrance, companies need a big capital requirement to entry on the market. Even if there are a lot of competitors as we saw before, many markets are workable. New market opportunities could emerge in countries with less tradition in using solar technologies because solar thermal water heating would radically reduce costs. For example, GREENoneTEC has delivered solar modules for the world’s biggest solar thermal plant in Saudia Arabia. Even several states in USA have introduced subsidies for solar thermal water heating systems. The threat of substitute highly exists on the market.
The principal substitute of solar thermal collectors is the photovoltaic product. There is a decline of the solar thermal market due to a rapid decrease in the price of photovoltaics and this causes a substitution effect. Even if these products are less efficient than solar thermal collectors, it’s less expensive and easier to install. Finally the power of buyers is omnipresent on the industry since the arrival of the Chinese players. As we saw in the first question, their low costs of production and low raw materials allow them to dump all the prices. Furthermore, the prices of the products also depend of the price of raw material, which change following the market trends as we saw before (increase of oil and copper over time for example).
To conclude, this industry seems really profitable for all the actors, even if the Chinese players are the most important competitors with their low prices. The Solar thermal energy represents today an interesting and economic way to respond to the environmental question and it could emerge a lot of opportunities and attractiveness for new competitors in all the unexploded markets.
In this rapidly changing solar industry with new competitors entering the market, it is important for GREENoneTEC to keep a certain competitive advantage in order to keep power in the industry. Not only it is crucial to identify new opportunities to get competitive advantage, GREENoneTEC has to be able to sustain it. In the next few lines we will take a look at these significant aspects.
Compared to vits competitors, GREENoneTEC doesn’t have a brand, which allow them to stay focused on research and development and production. They don’t have to worry about branding, sales, distribution and systems integration because they let those tasks to their partners. By doing this, they can have higher sell volumes because they can sell to all the other solar systems supplie. This strategy can help them keeping a low margin, which allows high quality products at reasonably low prices. This competitive advantage of having a similar product but at lower costs represents a cost advantage. With few financial difficulties, they were able to open a new plant in 2001 in Sankt Veit, Southern Asutria, which is an important location for potential renewable energy. However, with the price war that China brings in on the market later on it is more difficult for GREENoneTEC to sustain this competitive advantage.
As an original equipment manufacturer (OEM) in a technology intensive industry, GREENoneTEC is an innovation leader by investing a big part of their capital in research and development to help product innovation as well as being able to optimize production methods. This optimization brings new technologies and processes. This was proven by working with their sister company KIOTO Photovoltaics to enter a new segment with this new product and open large-scale solar power stations. Cost development being higher in the beginning the competitive advantage was more about differentiation with this new product but costs are getting lower and similar to the solar thermal systems in 2012. A big decrease in the photovoltaics’ price captured a lot of consumers.
It is important to have isolating mechanisms to stay ahead of others and keep away competitive imitation. GREENoneTEC has many competitive advantages as said earlier but are they really sustainable? They have the best production, quality control and logistics methods but at the end of the day the Chinese competiton is also able to produce solar thermal systems and photovoltaics systems at even lower costs. GREENoneTEC has better product quality because competition was able to identify the competitive advantage and believe they could have returns also, diagnose the firm’s strategy but they weren’t able to replicate the resources and the innovation necessary to achieve the same quality for their products. They are able to keep their OEM strategy by using the isolating mechanism of keeping immobile and difficult to perform resources and capabilities. Innovation leadership is their biggest strength and business strategy for the moment as the solar industry in getting more and more mature.
Chinese market is a threat to GREENoneTEC. It is an expending market and it does not seem to stop. European companies in China are not well represented concerning the solar thermal market especially since more and more Chinese companies enter the market. Hongzhi Chen said “if you start in this market today, you will be big in two or three years”. It shows well the growing power of the Chinese Market. To compete with this market, GREENoneTEC has to focus on how to develop an add value to create a gap between them.
One of the main values of GREENoneTEC is innovation. They access priorities and invest in Research and Development (R&D). Universities, consumers and international research institute allow them to develop new products. Their two main directions (product innovation and the optimization of production technologies and processes) help them in their process innovation. Thus, the development of new technologies brings new materials that lead to new production methods.
They have also taken opportunities in developing solar panel technology in countries, such as Saudia Arabia. They have been chosen between competition to install their solar thermal panels, because they were more resistant, and the technology was adapted to the hot climate and sandstorms. They should take example of this situation. They have been able to adapt themselves thanks to their R&D.
In the Chinese market, they should focus the research on the best technology matching different climates in China (coastline, mountain, humid climate, monsoon). By targeting their consumers, they will develop a new way of approaching the market in China. They can break the boundaries of the red ocean that is the current Chinese solar thermal panel market, and create a new market space. This is the Blue Ocean Strategy. As well, they would differ from the competition and create the gap that would let them to be influent in the Chinese market, where a lot of European companies fail to grow.
So by investing in R&D, GREENoneTEC will develop new technologies and new materials that will permit them to push boundaries and find new ways of selling their solar thermal panels.
KIOTO is now an important company in the solar industry. To ensure certain sustainability, KIOTO has to forecast its investments in different businesses. KIOTO mainly sells its product in the United States as they have a sales representative overseas. KIOTO started manufacturing photovoltaic modules, the most popular item in the U.S concerning the solar panel industry. If they want to stay in the competition, they have to renew themselves.
First, with Research & Development (R&D), KIOTO can develop new technologies and new materials. Thus, the innovation process, a value of GREENoneTEC, will be respected. They can develop strategies with different countries or climates, as we advice GREENoneTEC to realize in China.
The goal of a company is to become mature, which means it is a low cost industry, low cost inputs, segmentation and customer selection. There are three ways to achieve this goal. First, with new techniques, the company will develop new materials. Often, these new materials permit the company to reduce production costs. So, that is why we can continue to advice KIOTO to invest in R&D. Then by developing new products adapted to the customer and to different circumstances, the company will be able to segment more the market and to select customers. We also know that photovoltaic modules are very popular in the US, their main market. Thus, we can advice KIOTO to invest in R&D specialized in photovoltaic modules.
On exhibit 7, the area of installed solar thermal collector in Turkey in 2010-2011 has grown by 9 percent. Turkey has a specific climate. Once again, KIOTO could take advantage of their innovation and advanced technology in this market to implant itself in this region.
Finally, we can conclude that even if the Chinese competition is very harsh, KIOTO should make the most of it and continue to produce photovoltaic modules. In fact, it is said that Chinese materials are not solid and the rate failure is high. By modifying their branding, KIOTO could target more restricted consumers, and define them as a higher standard brand. The two key words is compete and growth, if the management keeps working to be a step ahead of the competition they will be able to give the best solution to their customers.
Dr.Dietmar Sternad, ‘’GREENONETEC: Fierce competition under the sun’’, Ivey publishing, Canada, 16p.
GREENoneTEC, website, «http://www.greenonetec.com/en/home/home/».