Analysis of Q-Cells as part of the solar industry

Business Analysis Project


Project Report, 2010
39 Pages, Grade: 1,0

Excerpt

Table of Contents

List of Figures

1. Introduction and Objectives

2. Situational Audit
2.1. Facts and Figures
2.2. Resources and Capabilities
2.3. Porter’s 8 Forces
2.4. PESTLE

3. Globalisation
3.1. Background and Criteria
3.2. Comparison to Competitors

4. Interpretation and Recommendations
4.1. Key Success Factors
4.2. Strategic Alignment
4.3. Scenarios

5. Conclusion

List of Appendices

References

List of Figures

Figure 1: Key Figures of Q-Cells

Figure 2: Facts and Figures of Q-Cells

Figure 3: Development of Q-Cells’ Share Pric

Figure 4: Basis Relationship between Resources, Capabilities and Competitive Advantage

Figure 5: Porter’s 8 Forces Model applied to the Solar Industry

Figure 6: Growth of the Photovoltaic Market

Figure 7: PV Market Demand in 2008

Figure 8: PV Market Forecast

Figure 9: Applied Globalisation Criteria

Figure 10: Key Success Factors

Figure 11: Critical Success Factors

Figure 12: Key Performance Indicators

Figure 13: Strategy Map of Q-Cells

1. Introduction and Objectives

This report presents the findings of an independent business analysis project study of Q-Cells as part of the solar industry. The purpose of this assessment was to evaluate the company’s current situation, as well as to maintain the economic and strategic sustainability of Q-Cells, one of the world’s largest solar cell manufacturers. Furthermore, the report deals with a strategic issue, namely, globalisation and its influence on the company and on Q-Cells’ two main competitors. This report summarizes the results of a business analysis project based on information collected during the field work. In detail, this report addresses the following issues:

- Situational audit: What is the company’s current situation? What are its re- sources and capabilities? What are its core competences?
- Globalisation: What criteria define globalisation? What impact does globalisa- tion have on Q-Cells? And how about on the company’s two competitors, Solon and Conergy?
- Interpretation: What are the strategic options for a sustainable strategy? What actions need to be taken in order to maintain a sustainable position? What ef- fect will a possible strategic alignment have on the company and its numbers?

Several approaches are applied within the analytical framework. The recommended measures will be critically appraised based on a literature review in order to identify the potential limitations and obstacles the business analysis project may face. The following frameworks/tools are applied to the different areas of research:

- Situational audit: Resources and capabilities, Porter’s 8 Forces analysis, PESTLE,
- Strategic alignment: Key success factors and strategy map.

To ensure that the recommended actions are feasible, suitable, and adaptable to future developments, key figures will be used for the measurements.

2. Situational Audit

2.1. Facts and Figures

Q-Cells, one of the world’s largest solar cells manufacturers based in Germany, was established in 1999 and produces various types of solar technology (Q-Cells SE, 2009a). Although the enterprise is now developing into a photovoltaic company, Q- Cells’ “core business is the development, manufacture and marketing of powerful solar cells made out of monocrystalline and multicrystalline silicon” (Q-Cells SE, 2009a). This includes the production of solar cells and solar modules, as well as solar systems. Owing to technological development, Q-Cells is able to offer a fairly new materialsaving thin film technology. Q-Cells’ clearly defined vision and mission highlight where the company currently stands and where it aims to go. Its mission is to “make solar energy the most important energy source” (Q-Cells SE, 2009f).

Production predominantly takes place in Germany, but the opening of a new factory in Malaysia provides the opportunity to produce in another country (Q-Cells SE, 2009c). With over 40 subsidiaries in Spain, Germany, Italy, USA, Netherlands, France, Mexico, and Switzerland, Q-Cells is active on different international markets (Q-Cells SE, 2009e). Q-Cells’ workforce now surpasses the 2000 employee mark (Q-Cells SE, 2009c).

Q-Cells faces a number of challenges, including the emerging price pressure, competition from Europe, USA, and the up and coming Far East, as well as overcapacity and the financial crisis as the main driver for problems over the last year. These problems have affected the company in different ways. The sales revenues decreased dramatically in 2009 (see Figure 1).

Figure 1: Key Figures of Q-Cells

Abbildung in dieser Leseprobe nicht enthalten

Source: Q-Cells SE, 2009d.

Linked to the decrease in sales, the earnings before interest, taxes, depreciation and amortization (EBITDA), as well as the earnings before interest and taxes (EBIT) have, likewise, decreased. The EBITDA, as well as the EBIT were negative in 2009 (see Figure 2) (Q-Cells SE, 2009d). On the whole, Q-Cells suffered an almost one billion Euros loss in net income for the period (01/01/2009-09/30/2009). Furthermore, production did not decrease in proportion to sales. This has and still leads to overcapacity and a subsequent price decline for solar cells. Overcapacity is additionally caused by customers who have postponed their orders due to the financial crisis.

Figure 2: Facts and Figures of Q-Cells

Abbildung in dieser Leseprobe nicht enthalten

Source: Q-Cells SE, 2009d.

The negative development of Q-Cells is evident in the share price provided in Figure 3.

Figure 3: Development of Q-Cells’ Share Price

Abbildung in dieser Leseprobe nicht enthalten

Source: Smarthouse Media GmbH, 2009.

In order to address the problems presented above in more detail, to determine their causes and to find solutions for them, it is necessary to implement different approaches to analyse Q-Cells. In a first step, the enterprise itself will be evaluated, using the resources and capabilities approach.

2.2. Resources and Capabilities

In a changing world, an enterprise’s resources and capabilities provide a secure foundation for a long-term strategy (Grant, 2008, p. 127). Furthermore, a competitive advantage can be derived from the resources and capabilities approach, which is the primary source of superior profitability (Grant, 2008, p.127f.). The concept of dynamic capabilities was introduced by Teece & Pisano (1994) and Teece, Pisano, & Shuen (1997). This approach separates the resources into tangible, intangible, and human resources, whereas capabilities are separated into their functional area (provides an overview of the basic relationships) (Grant, 2008, p. 131, 136).

Figure 4: Basis Relationship between Resources, Capabilities and Competitive Advantage

Abbildung in dieser Leseprobe nicht enthalten

Source: Grant, 2008, p. 131.

By applying this framework to Q-Cells based on available company information, the resources and capabilities in Appendix i were identified. Q-Cells follows a strategy of growth and cost reduction (Q-Cells SE, 2009f). Therefore, Q-Cells has very strong re- sources in the area of technology, with R&D and low cost production representing its primary capabilities. Based on these identified resources and capabilities, Q-Cells has to select a business strategy that exploits valuable resources and distinctive compe- tencies in order to generate a competitive advantage. The strategic alignment within the scope of this business analysis project will determine Q-Cells competitive advan- tage, as well as its key success factors.

2.3. Porter’s 8 Forces

A helpful and widely used framework for classifying and analyzing the structural vari- ables influencing competition and profitability was developed by Michael Porter (Grant, 2008, p. 71). In addition to the established industry rivals, Porter identified four other competitive forces that may influence competition: customers, suppliers, potential entrants, and substitute products (Porter, 2008a, p. 3). According to Porter, the con- figuration of the five forces differs by industry (Porter, 2008b, p. 80). The model has to therefore be adjusted and the five forces identified with regard to the specific needs of a company (Appendix ii). But Porter’s model of five forces has some weaknesses. The model was developed in a time when the global economy was characterised by strong competition and periodic growth. In comparison to today, the development of the economy was relatively stable and predictable and there was no deregulation.

In response to criticism of the model, the model was extended by three additional forces: globalisation, digitisation, and deregulation (Downes and Mui, 1998, p. 64f.). Applying this tool to the solar industry based on the available information, the following results of Porter’s “new” 8 Forces Model were attained (see Appendix iii):

Figure 5: Porter’s 8 Forces Model applied to the Solar Industry

Abbildung in dieser Leseprobe nicht enthalten

Source: Own figure.

Suppliers and existing rivalry pose quite a high threat to Q-Cells’ profitability. Hence, Q-Cells has to focus on profitability-related factors to remain sustainable. The threats from competitors on the company’s profitability lie, on the one hand, in the general competition involving high profile enterprises, a general overcapacity, as well as inter- national price pressure. On the other hand, the threat to profitability from suppliers lies in their strong market power since the supplier market is still not as extensive as required by the solar industry (the supplier market continues to grow). Furthermore, the solar industry is dependent on the quality of silicon. How these threat factors can be appropriately dealt with is addressed in the strategic alignment of this business analysis project.

2.4. PESTLE

Chapter 2.2 identified Q-Cells’ internal strengths (internal), while Chapter 2.3 highlighted the threats to the profitability arising from the micro-environment (external). This chapter focuses on the macro-environment (external) and the effects it has on the solar industry and Q-Cells, since Porter’s 8 Forces Model does not include the impact of broader environmental factors. A company’s macro-environment can be assessed using the PESTLE analysis. PESTLE stands for:

- Political
- Economic
- Social
- Technological
- Legal
- Environment (Renewal Associates, 2003, p. 1)

With the help of PESTLE, enterprises have the possibility to understand the external macro-environment in which they operate and might operate in the future (Renewal Associates, 2003, p. 1). This model reduces the complexity of the tasks by providing a simple structure (see Appendix iv for general facts) (Huczynski and Buchanan, 2007, p. 45).

In the following section, only those PESTLE factors that have a significant influence on the solar industry and on Q-Cells are addressed and elaborated (see Appendix v). The political and legal factors represent the biggest influences on the solar industry, despite the financial crisis. In detail, this implies that, especially in Germany, the feed- in compensation, the governmental subsidies and taxation policy, as well as laws like the renewable energy law support the growth of the solar industry. This is further en- couraged by a changing awareness of the population towards environmental protec- tion and the reduction of CO2 emission attributable to the greenhouse effect. On the other hand, the solar industry in Germany would not be as competitive if it were not being supported by subsidies. In other words, the solar industry in Germany still de- pends on subsidies.

Due to the fact that Q-Cells and other German solar companies now have to compete with other European, American and Far Eastern enterprises and their low cost operations, the German wage costs and unions may obstruct Q-Cells. Furthermore, China subsidises the Chinese solar industry, leading to a rapidly growing market for Chinese solar cells. Taking the technological factors into consideration, new discoveries like the thin film technology provide a new way forward for solar energy.

3. Globalisation

3.1. Background and Criteria

Internationalisation, flexibilisation of the labour market, economic growth or worldwide networking are catchwords that are connected to the term globalisation. But what is globalisation? Even in literature it is difficult to identify one overarching definition of globalisation. “Globalisation is a malleable, catchall term that can be invoked in what- ever way the user finds convenient” (Scholte, 2000, p. 42). Nevertheless, globalisation can be seen as a kind of “supraterritorial relations between people” (Scholte, 2000, p. 47). Boudreaux (2008, p. 1) supports this idea by providing the following definition of globalisation: “globalisation is the advance of human cooperation across national boundaries”. Globalisation is a logical continuation of our modern world and society which is closely correlated with industrialisation and the accumulation of material re- sources (Giddens, 1990). In the end, the definition of globalisation remains dependent on the individual’s point of view. Hence, the following criteria shall be used here to reduce the interpretation of globalisation for this project to specific questions:

- Global sales: where are the companies active?
- Global production: where do the companies produce?
- Global suppliers: do the companies use international suppliers?
- Global finance: do the companies use international financial possibilities?
- Global alliances/partnerships: do the companies collaborate with international part- ners?

The first step to evaluate the consequences of globalisation for Q-Cells, Solon, and Conergy is to take the global market of solar energy into consideration in order to assess whether globalisation may open new markets. The Scientific Advisory Board of the German Government (2003) anticipates that over 50% of the total usage of energy will be derived from photovoltaic by 2010 (see Figure 6).

Figure 6: Growth of the Photovoltaic Market

Abbildung in dieser Leseprobe nicht enthalten

Source: Scientific Advisory Board of the German Government, 2003.

This offers the possibility for a huge sales market in the future. Furthermore, a comparison of the current main markets and the forecast of the prospective main markets reveal those with high potentials. Solarbuzz (2009), an international research and consulting company specialised in solar energy, released the current market situation of photovoltaic market demand (see Figure 7).

Figure 7: PV Market Demand in 2008

Abbildung in dieser Leseprobe nicht enthalten

Source: Solarbuzz, 2009.

Furthermore, the European Photovoltaic Industry Association (EPIA) (2008) provides a market outlook for photovoltaics until 2012 (see Figure 8).

Figure 8: PV Market Forecast

Abbildung in dieser Leseprobe nicht enthalten

Source: European Photovoltaic Industry Association, 2008. For detailed figures, see Appendix vi.

Taking this development into consideration, the main prospective markets in the upcoming years include Europe, USA, and Asia.

[...]

Excerpt out of 39 pages

Details

Title
Analysis of Q-Cells as part of the solar industry
Subtitle
Business Analysis Project
College
Anglia Ruskin University
Grade
1,0
Author
Year
2010
Pages
39
Catalog Number
V161149
ISBN (eBook)
9783640761586
ISBN (Book)
9783640761708
File size
1062 KB
Language
English
Tags
Analysis, Q-Cells, Business, Project
Quote paper
Björn Möller (Author), 2010, Analysis of Q-Cells as part of the solar industry, Munich, GRIN Verlag, https://www.grin.com/document/161149

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