Balancing the Power Equation Suzlon Energy Limited

Balancing the Power Equation: Suzlon Energy Limited

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1. Competitive Environment of The Global Wind Power Industry

The demand in clean energy has led to the development of several organizations that are determined to create clean energy thereby leading to a competitive environment within themselves and the industry.

Porter’s Five Forces

The bargaining power of suppliers

In the global wind energy sector, the raw materials utilised in the building of wind farms are a vital element of the supply distribution network that takes place throughout the manufacturing process. Steel, copper, glass fibre, aluminium, ductile iron, brass, ceramics, cement, and Teflon are some of the raw materials used in the manufacturing process. In India, the cost of main raw materials, which are steel and copper, itself is prohibitively expensive. These resources must be stored, packaged, and transported in order to reach locations that are far distant from their source. This results in higher expenditures and a low bargaining power of suppliers.

The bargaining power of buyers

Buyers really like to purchase the quality products available while paying the lowest price possible. Long-term profitability of wind energy is usually put under a challenge due to this. The narrower and stronger the customer base of wind energy is, the higher the bargaining power of the buyers and the higher their capacity to demand growing offers and discounts from a wind power company.

Threats from potential competitors

Despite the fact that the wind power business is dominated by a small number of enterprises, the degree of competition in this industry is still strong and is increasing. Some firms are solely focused on wind turbines, while others are subsidiaries of huge global corporations. As a result, they employ a variety of corporate strategies to situate themselves in the market based on their competitive advantages. Companies with an ability to give affordable wind power while still maintaining their profit margins and assure clients the reliability they demand and this tends to draw a greater number of clients.

Threats from substitutes

Substitutes have a significant negative impact on the profitability of an industry. Coal-fired power facilities are a significant source of competition for the wind energy sector. For instance, India relies on coal as its principal source of energy production, meeting 57 percent of its total energy requirements. Compared to wind energy, power plants that makes use of coal for power generation have a number of benefits, including a lower initial investment, a shorter construction time, smoother and steady running, more efficient power output, and a more developed technological base.

Threat of New Entrants

Threat of new entrants is high. Certain developments may come as new entrants in the generation of electrical energy and this may pose challenge to wind power. Short-term technology developments are almost certain to associate the design of power plant in order to ensure flexibility in the fuel used, especially in co-fired plants, which entails customising emissions control and fuel feed systems which can adapt to the distinctive traits of biomass fuel in order to reduce emissions.

1.2 When a firm from an emerging market with limited technological knowledge should enter the industry

An organization from an emerging market with insufficient knowledge in terms of technology should enter the industry after it has carried out sufficient research and has enough capital to invest in research and design.

1.3 Challenges for an EM firm to enter new emerging industries such as the wind power industry

An emerging market firm that enters an emerging market like the wind power is likely to face two classes of challenges, that is, non-technical challenges and technical challenges.

1.3.1 Non-technical Challenges

Initial investment

The capital need for wind or solar power-based facilities is much greater when compared to other power plants. Establishing a power plant that uses coal as fuel needs roughly INR 4 crore for every megawatt. On the other hand, wind power plants having a capacity utilization of 25 percent needs an expenditure of INR 6 crore for every megawatt. The real investment, with more effective capacity utilization of 80 percent, works out to be INR 18 crore for every megawatt. The real investment, assuming 80 percent capacity utilization, is roughly INR 98 crore. Besides this, this even demands investment in research and development area to gain innovative and efficient state-of-the-art technologies for improved performance.

Acquisition of Land

The construction of a new power generation system as well as transmission line is a big issue that firms and governments must deal with before the project can be completed. Several renewable energy initiatives, particularly in India have been delayed down as a result of this reason. If any investor wishes to commission a real estate development project in close vicinity to an airport, they will face similar challenges.

 Lack of skilled manpower

Another area in which emerging countries such as India must invest is in the training and development of skilled workforce. At the moment, the Indian renewable energy sector is suffering from a significant lack of qualified workers. Because of a scarcity of qualified workers, the initiative’s completion time is lengthened, resulting in cost overruns in the process.

1.3.2 Technical challenges

Intermittent nature of renewable

In nature, the electrical output of typical fossil-fuel plants is heavily reliant on the availability of fuel. In this way, it is much more dependable in comparison to nonconventional energy-based plants because of the constancy and predictability of the quantity of power produced. The electricity produced by traditional energy plants can be readily regulated by the control systems in the plants themselves. Conversely, speeds within which wind travels cannot be predicted with any degree of accuracy.

Location dependency

The majority of renewable energy generating takes place in distinct locations. It is possible to see the practicality of a wind energy conversion system in regions where the wind velocity is greater than the cut-off wind speed. It is possible that the generating locations and the load location are located in different locations. As a result, these sorts of technologies are not very practical for use in land-based transmission systems.

1.4 Advantages offered by new emerging industries for EM entry

Renewable energy from wind is cost-effective

Land-based utility-scale wind energy is among the most affordable forms of electricity accessible today, with costs per kilowatt-hour ranging from 1–2 cents well after production tax credit. Wind energy reduces the price unpredictability that conventional sources of electricity are subject to as a result of fuel prices.

It is a clean fuel source

In contrast to energy plants that depend on coal or fossil fuel burning, wind turbines do not cause pollution, whereas those that depend on fossil fuel burning, like coal or natural gas, generate particulates, nitrogen oxides, and sulphur dioxide, which cause diseases and illnesses to human beings as well as economic damage. Hence, energy produced from wind do not emit greenhouse gas emissions.

Wind turbines can be built on existing farms or ranches

This has a significant positive impact on the economy of rural regions, where the majority of the greatest wind locations may be located. Landowners such as ranchers and farmers may continue to operate their property since wind turbines take up just a portion of the available space. Operators of wind power plants pay a fee to the farmers or ranchers in exchange for the usage of their property, resulting in an increase in the revenue of the owner.

3. Suzlon’s competitive positioning at different point times

3.1 From its entry in 1995 till 1999

Having started from humble origins in 1995, Suzlon CEO Tanti has worked tirelessly to develop a strategy for growing the family-owned wind power company over the lengthy period, acquiring the most cutting-edge applied sciences and putting in place a business model based on completely integrated in-house production. It has remained focused to one industry and ensured a gradual expansion program that reduces waste and costs. In 2006, Suzlon acquired the Belgian gearbox maker Hansen Transmissions International for a total of €1.22 billion in cash, making it the company’s most significant purchase until the REpower deal. That corporate strategy transaction cost the Indian firm approximately €424 million (US$ 565 million), but it resulted in the acquisition of valuable cutting-edge expert knowledge as well as critical, if somewhat partial, control over the global drive teach component supply chain. Hansen and Vestas had collaborated on the development of the new gearbox for the V90-3 MW series, which is now the key volume component for the Danish world market leader. Therefore, acquisitions have been a key part of the company, allowing it to use existing knowledge and experience to produce high quality products.

3.2 After it became the Indian Market leader

Suzlon has accelerated its attempts becoming the globe’s leading maker of vertically integrated wind turbines, in addition to introducing innovative products. After dispatching the first batch of rotor blades (Type S-60) from its facility in Daman, the company officially began its reverse integration process. The development and launch of Suzlon Control System (SCS), a manufacturing business unit (MBU) in Daman dedicated to the design and production of wind turbine control systems, served to strengthen the integration even further. Suzlon expanded its operations internationally during this time. Operations in the United States and Germany were initiated by the company’s fully owned subsidiaries Suzlon Wind Energy Corp. and Suzlon Energy GmbH, respectively. A consulting office was established in Beijing. As a fully owned subsidiary, Suzlon Energy (Australia) was established and immediately began operations. Suzlon Energy A/S, Denmark, on the other hand, was established as a totally owned subsidiary. 

3.3 Alternative Strategy Available to Suzlon

There are several strategies available to Suzlon in order to increase competitiveness. First, it is important to remain innovative and find out how other organizations are innovating through an effective research and development approach. It is also recommended that the firm upgrades its customer relationship system and invests in employee training as well as product development so as to combine quality products with quality customer relations. The advantage of these approaches is that they are less costly and within the organization’s reach. Even though there were other alternative strategies for the organization such as mergers and acquisition to attain its global ambitions, the path that Suzlon took proved to be the most efficient one. For example, In 2006, Suzlon acquired the Belgian gearbox maker Hansen Transmissions International. It also acquired REpower later, giving itself a competitive advantage in the European markets. However, there is a need to consider expanding its product portfolio in order to remain competitive. For example, the acquisition of REpower is an example of horizontal acquisition, a strategy that will enable Suzlon to grow by taking over other established markets for similar companies using its already existing supply chain and industry ties. It is also recommended that Suzlon tries to venture into vertical integration by acquiring other firms that specialize on other products before and after Suzlon in the supply chain. Horizontal and vertical expansion will enable Suzlon to acquire new facilities, assets, and tools to increase the total output and products made.

4. Suzlon’s competitive positioning at different point times

4.1 After its IPO in 2005

Having risen to a management position in the wind energy generating industry, Suzlon was listed on the Bombay Stock Exchange and the National Stock Exchange in the United Kingdom. The firm’s initial public offering (IPO) was once subscribed more than 15 times, a testament to the firm’s management’s expertise as a renewable energy operator. When Suzlon completed the installation of 1GW of installed capacity in India in 2005, it marked a new breakthrough in the company’s development. Its new and upgraded wind turbine generator suites, like the 2.1MW generator, enable for more efficient and environmentally beneficial wind energy harvesting. Despite the fact that it was founded more than a decade prior, Suzlon has achieved the position of super brand, which is a testimony to the company’s leadership and technical innovation. After years of hard work, Suzlon has emerged as the sole energy business in India, the sole renewable energy firm in the continent of Asia, and the only wind energy corporate in the universe to achieve this distinction. Aside from that, it ranks fifth in the universe among WTG producers on the basis of total capacity installed. IPO listin gin 2005 boosted the company’s position in the world, including its goodwill amongst investors and other relevant stakeholders such as financial partners and governments. The listing enabled the organization to garner momentum and acquire more assets, giving it better competitive ability.

4.2 After RE Power acquisition in 2008

Additionally, in 2015, the S111 2.1MW WTG suite, which is a stage of the S9X series, received TÜV NORD certification for both its 50 Hz and 60 Hz versions. When the WTG was designed, tested, and manufactured, this accreditation was given to the company that met all of the requirements of the norms and guidelines. New investors were attracted to Suzlon by the company’s success narrative and agreed to enter forces. Formal contracts with Dilip Shanghvi Family and Associates (DSA) for equity investments of Rs. 1,800 crores in Suzlon Energy Limited for the purpose of equity infusion to expedite expansion were inked in 2015 between Suzlon and DSA.

4.3 In 2014

In 2014, Suzlon had a 21% market share in India. To compete effectively, the firm capitalized on opportunities for growth in emerging markets in Latin America, Aisa, and Africa. Activities in India, South Africa, and Brazil enabled the firm to gain more market share by focusing on rapidly expanding markets. This was a good strategy compared to its rivals’ focus on developed economies which have very slow expansion rates. Suzlon also achieved a number of significant accomplishments during the course of the time frame. The Artilleros wind farm in Uruguay was the site of the company’s 10,000th wind turbine. PALS (Pure Air Lovers’ Society) and modern academic institution in North America for wind technicians were both successful in achieving their goals. This initiative developed a society of humans championing wind power in the particular instance of PALS and adapting to new manpower requirements in the case of the latter. The firm has also managed to retain significant competitive advantage since 2014 by having better control over costs, quality, time, integration of latest turbine technology, and quality customer service and support in the long term. The combination of these elements, since 2014, have enabled the company to focus on design and manufacturing of quality products relating to a sparsely populated wind energy industry. It has also allowed the firm to step over the hurdle of the industry’s long production lead period for components needed in the supply chain. Ultimately, the company has done very well in terms of performance and expanding its market share since 2014, making it one of the most successful emerging markets multinational.

5. Roadblocks to RE Power acquisition

5.1 Reason for acquisition of REpower not going as planned

Suzlon’s triumph is widely regarded as a devastating setback to Areva’s long-term plans to invest in renewable power. The French business had hoped to be one of the biggest participants in the wind sector by replicating the recent triumphs of power engineering juggernauts General Electric (GE) in the United States and Siemens in Germany, respectively. GE purchased a significant wind turbine producer in 2002, whereas Siemens obtained a big wind turbine maker in 2004. However, events do not necessarily turn out the way one would want them to. Areva might have decided to enter the wind energy industry at the perfect time if it had acquired REpower’s highly regarded multi-megawatt category wind technology (1.5-5 MW), acquiring an effective renewable power company with significant growth capacity that could supplement its extant nuclear energy activities in the process.

5.2 Key Roadblocks

Following the completion of a transaction between both companies, it is expected that Areva’s transmission and distribution business will become a prominent provider of wind energy projects for Suzlon. This might not have been Areva’s initial foray into the wind energy industry. Jeumont Industrie, a fully owned subsidiary of nuclear equipment provider Framatome ANP and a subsidiary of the Areva group, attempted to venture the wind turbine manufacturing market around some years ago, but failed. The company had worked with outside assistance to create a revolutionary direct drive 750 kW J48 stall type turbine type that made use of a permanent magnet type generator, with plans to swiftly grow into the profitable 1.5-2 MW volume category with the cooperation of other companies. Nevertheless, due to a slew of technical issues, J48 turbine production was suspended few years later, despite having delivered approximately 50 installations.

5.3 Differences between EM multinational and a developed market multinational

One of the most notable differences is that EM multinationals operate in markets that are rapidly developing because growth in advanced economies has slowed. As a result, emerging market MNEs have now had to compete in the same environment with developed nations’ MNEs in the exploitation of resources and new opportunities. In terms of knowledge sharing developed economies MNEs are at an advantage because they are able to transfer knowledge and years of experience from corporate headquarters, applying the same to other subsidiaries in the emerging markets. However, EM MNEs has limited knowledge and experience in operations.

5.4 How Mr. Tanti should deal with the issue

Suzlon must concentrate on its growth strategies, which includes acquiring capable rivals across the value chain. Nevertheless, the corporation must focus its efforts on wind farm generation and construction, as this is where the industry’s fiercest competition resides. It must also spend in research and development to expand its range of products beyond 1.5–2.0 MW so that it can grab untapped markets and expand its order book. The firm ’s production base in India ought to be maintained. To minimize its vulnerability to market disruption risk in India, it must also concentrate on getting another affordable manufacturing venue. Several rivals would most likely follow the Suzlon strategy to gain share of the market or protect their current market share. During any available chance, they will integrate and expand vertically. Furthermore, some businesses may take advantage of the government subsidies and regulations that favour local businesses. They may be able to gain significant competitive advantages over Suzlon as a result of this, Suzlon, depending on the foregoing logic, should form strategic alliances with state-owned power utilities. It may also build partnerships with local energy firms, particularly those involved in the construction of wind power infrastructure in host nations. Suzlon will be able to avoid several of the limitations that foreign enterprises may encounter.