How First Solar can plan to succeed in a competitive market. Business strategy report

TABLE OF COTENTS:

0.0 Figure List

1.0 Introduction

2.0 Analysis and discussion

3.0 Recommendations

4.0 Conclusion

5.0 References

FIGURE LIST:

Abbildung in dieser Leseprobe nicht enthalten

1. INTRODUCTION:

In 3 years, First Solar went from being one of the PV companies generating the most income, to reveal a net operating loss of $ 39 million. Much of this income lost was attributable to Chinese manufacturers’ strong competence, subsidized by their government, were flooding the market with low-price crystalline-silicon (c-Si) solar panels. This strategy report will analyze how First Solar can plan to succeed in a competitive market. This will be analyzed by using The Porters Five Forces. After having a knowledge of its competitors, the report would identify what opportunities the company has in order to plan a successful strategy. To finalize, will be given some recommendations that can help First Solar to success again.

2. ANALYSIS AND DISCUSSION:

In 2009, the Chinese government declared leadership in PV solar production a national priority, ratifying a multitude of solar subsidy programs that transformed China into the world’s largest producer of solar panels in just a few short years. Crystalline silicon manufacturers from China began producing quickly, cheaply, and in mass quantities, exporting over 90% of their panels abroad. Collectively, the yearly installation of PV panels in China grew more than 1000% from 2009 to 2011. First Solar has been affected negatively by the massive Chinese market. The company revealed a net operating loss of $39 million, the company’s first year-end net operating loss in the past seven years.

First Solar must take a decision in order to be successful again and face Chinese massive production market. To decide what decision is best for the company, first they must analysed the competition of the sector in which operates. The Porters Five Forces tool analyse a sector based on five existing forces through analysis and identification. This allows the company to know the competition of the sector in which it operates (Johnson, Whittington & Regner, 2017). First Solar faces a “Red Ocean", the competition industries are already well defined and rivalry is intense. It can be say that the company does not have many opportunities of improvement because Chinese competitive power is so great that it can create more demanding conditions that wipe out its competitors. First Solar is facing an industry with high threat of Potential entrances, Bargaining Power of Buyers, Competition Rivalry of Firms and Threat of Substitutes.

First Solar is facing with high competitive challenges in the external environment, and that is why they don´t have a lot of improvement opportunities in order to face its strong competitors. In order to be successful, the firm should analyse other alternatives and they will be forced to re-examine its strategic direction. The expansion method matrix explores in a structured way the methods by which the market opportunities associated with strategy options might be achieved (Lynch, 2015). There are several opportunities for First Solar to leverage their manufacturing expertise in an Outside/International context (Figure 1). The company could consider these options: Merger or alliance with a Chinese company, and thus be able to take advantage of its production power and increase the scope of the brand. Joint venture with a Chinese manufacturer with potential synergies of wider market access and a broad based PV offer giving potential customers a wider range of product to choose from. Acquisition of a producer of PV systems that already has implemented a new technology successfully, in order to don´t need to spend the time and money to develop the new technology itself.

After examining the organization´s internal and external expansion opportunities and its geographical spread of activity, it makes sense form the company to merger with a Chinese PV manufacturer, this agreement would unite First Solar and a Chinese solar firm into one new company. First Solar should merge with a Chinese firm because they are the strongest competitors in the market. China is the largest solar photovoltaic cell producer in the world (de la Tour, Glachant & Ménière, 2011). In 2012 Chinese producers were manufacturing 63% of the entire world’s supply of PV panels. First Solar and other U.S. and European firms’ can´t compete with this massive global production, because together, the U.S. and Europe constituted just 14 percent of global module production in 2012 (Mehta, S., 2013).

Another reason why the company should merge with a Chinese firm is because, China can make solar panels for about 25% less than U.S. companies. Chinese factories are four times larger than a U.S. plant, and because of economies of scale, bigger operations can negotiate better contracts with suppliers and equipment can be used more efficiently (Castellano, R. 2016). Gang (2015) stated that Much of China's early expansion of manufacturing sectors can be attributed to its competitive advantages in cheap labour and good infrastructure, as well as the alleged undervaluation of the Chinese currency.

3. RECOMMENDATIONS:

In 2015, China's manufacturers held five of the top ten spots of “The Top 10 Solar Panel Makers in the World” (Figure 2). First Solar was located in the 5th place in the ranking bellow Trina Solar, JA Solar, Hanwha Q Cells and Canadian Solar. In order to gain prestige and power, the company should merge with Trina Solar which is the top firm in the raking, this firm has been world’s largest solar panel maker after it surpassed its rivals (Wang, 2014). Trina Solar is known for producing products that are highly reliable, with a good performance due to the company’s quality first policy. Trina Solar (2020) claim to control quality along every step of the manufacturing process. They provide the industry-leading 25-year lifetime warranty.

4. CONCLUSION:

After analysing First Solar´s competition it can be said that the company would not be able to face the strong Chinese competition by their own. Competing against the Chinese market can be very expensive for First Solar, since this country has control of most of the PV production around the world, furthermore, its panel’s production is cheaper and more productive than the U.S. panels manufacturing. Therefore, instead of trying to compete with this market, First Solar should join it. Merging with a Chinese firm would be the best strategy to success in the PV industry. Merging with Trina Solar will help the company to reach, expand into new segments and gain market share. The company could gain access to a bigger market and, thus, a bigger client base. Furthermore, these two companies together would be strong enough to face any other competences.

REFERENCES:

Castellano, R. (2016)China's EV Battery Industry Could Be A Repeat Of Solar And Rare Earth Dominance. Seekin Alpha [online]. Available from: https://seekingalpha.com/article/4014657-chinas-ev-battery-industry-be-repeat-of-solar-and-rare-earth-dominance [Accessed 1 May 2020]. Exhibit 4 de la Tour, A., Glachant, M. & Ménière, Y. (2011) Innovation and international technology transfer: The case of the Chinese photovoltaic industry. Energy Policy. 39 (2), pp. 761-770.

Gang, C. (2015) China's Solar PV Manufacturing and Subsidies from the Perspective of State Capitalism. The Copenhagen Journal of Asian Studies. 33 (1), pp. 90.

Johnson, G., Whittington R., Ragnér, P., Scholes, K. and Angwin, D. (2017). Exploring strategy: Text and Cases. 11th edn., Pearson Education Limited.

Lynch, R. (2015). Strategic Management. 7th edn., Pearson Education Limited.

Mehta, S. (2013)GTM Research: Yingli Gains Crown as Top Producer in a 36 GW Global PV Market. Green Teach Media [online]. Available from: https://www.greentechmedia.com/articles/read/yingli-gains-crown-as-top-producer-in-a-36-gw-global-pv-market [Accessed 4 May 2020]. Exhibit 3

Trina Solar (2020) US/Trina Solar. Available from: https://www.trinasolar.com/us/index [Accessed 2 May 2020].

Wang, U. (2014)Guess Who Are The Top 10 Solar Panel Makers In the World? Forbes [online]. Available from: https://www.forbes.com/sites/uciliawang/2014/12/03/guess-who-are-the-top-10-solar-panel-makers-in-the-world/#472a7815a5e3 [Accessed 1 May 2020].

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