5 Forces Analysis for the Market Entry and Expansion Strategy of Shunfeng International Clean Energy Ltd

Table of contents

List of abbreviations

Table of figures

1. Introduction

2. Shunfeng International Clean Energy Ltd. (Wuxi Suntech Power Co. Ltd.)
2.1 Corporate background
2.2 Financial Key Figures

3. South Africa
3.1 Characteristics of South Africa
3.2 South Africa’s energy market

4. Porter’s Five Forces
4.1 Description of the model’s approach
4.2 Implementation of the model to the South African market

5. Conclusion

References

Appendix

List of abbreviations

illustration not visible in this excerpt

Table of figures

Figure 1: source:own illustration based on SFCE's annual report 2014 and company homepage URL: http://goo.gl/t4KJIk

Figure 2: source: SFCE's annual results 2014 (2015), p.1., URL: http://goo.gl/vnjlNM

Figure 3: source: own illustration based on Auswärtiges Amt (2014): Südafrika, Wirtschaft, URL: http://goo.gl/NiYpH

Figure 4: source: Hofstede's 6D-Model, URL: http://goo.gl/cJViHD

Figure 5: source: own illustration based on Department: Energy Republic of South Africa, URL: http://goo.gl/GUg9BN

Figure 6 source: own illustration based on Five Forces analysis in 4.2

1. Introduction

There are big plans for renewables in future: Countries target to 100 % domestic energy demand to be produced by renewable energies.¹ High investments in the branch are supposed to bring the desired targets.² The world’s demand for energy is growing rapidly since intensified globalization results in global economic growth and welfare giving companies the incentive to conquer new markets. As more electricity is needed, its’ price is expected to rise worldwide that hampers economic growth. The world’s demand is calling for a global energy mix that adapts to our world’s changing economic and ecological conditions. Thus, providing and combining various independent new energy resources for sustainability with the outlook of reducing CO2 emissions in the long term and to assure and improve energy supply around the global.

China is successful³ due to its’ competitive advantage of producing low-cost solar mod- ules which has badly affected the EU photovoltaic market and its competing enterprises, but granted the country itself a strong position in the global photovoltaic market with their financial opportunity to expand easily. The implementation of tariff regulation and minimum prices to restrain imports for the protection of Europe’s domestic market forces China to rethink its’ strategies: China’s high government subsidies⁴ target for intensive investments in form of expansions to new territories. As subsidies may lead to overcapacities in the home country some solar companies are preparing for market en- tries in emerging countries - eager surviving plans of PV companies in times of high competition and falling prices to increase sales volumes to prevent another insolvency in the sector. Combining South Africa’s potential and new business opportunities in highly competitive photovoltaic markets Shunfeng International Clean Energy Ltd could help to boost Wuxi Suntechs’ figures to be in black again.⁵

This seminar paper explores influencing factors when entering new markets, hereinafter Shunfeng International Clean Energy Ltd. expansion activities into the South African photovoltaic market. The use of Porter’s Five Forces here should prove that an entry and expansion strategy via Wuxi Suntech can turn out to be benefitial for both SFCE and Wuxi Suntech as well as for South Africa. The 2nd chapter starts with a short outline of the company, giving brief information about its’ corporate and financial matters. Then in the 3rd chapter, characterics about South Africa are described using Hofstedes’ 6-D model, followed by general information about South Africa’s energy market. The 4th chapter depicts the theory of Porter’ Five Forces and the application of such to Shun- feng International Clean Energy Ltd and by this Wuxi Suntech into South Africa.

2. Shunfeng International Clean Energy Ltd. (Wuxi Suntech Power Co. Ltd.)

2.1 Corporate background

Shunfeng International Photovoltaic Technology Co. Ltd (SFPV) was renamed to Shun- feng International Clean Energy Ltd (SFCE) after it had become an investment group in 2014. The group is based in Hong Kong and counted 3973 employees recorded on 31st December 2014 (as of 2118 compared to the year before). FY 2014 ended with a total power generation of 607.793 MWh and a sales volume of 3.238.5 MWh.⁶ By acquisi- tion, cooperation, stockholding and collaboration of and with many related companies in the sector (like Wuxi Suntech) the group enlarged its’ business fields of upstreaming and downstreaming products in competitive as well as emerging solar markets to extent its core business providing low carbon green energy solutions ranging from solar, wind, geothermal and sea water power generation to the development and manufacturing of energy storage products. The group combines development, innovation, production and application altogether. SFCE’s ambitious goal is to become a widespread powerful mul- tinational new energy cooperation with strong core activities transferring its mission of a non-carbon-environment inside settled and emerging solar markets.⁷ Wuxi Suntech is a leading solar cell and module manufacturer in China that belonged as subsidiary to Suntech Power Holding Co. Ltd. Wuxi Suntech went insolvent as it could not cope with the global overcapacity problem, constantly falling prices etc. Due to the company’s high quality products and continuous developing potential and needed capacities for obtaining large-scale targets, SFCE decided to incorporate Wuxi Suntech in its portfo- lio. Since then Wuxi Suntech is a part of the SFCE Group.⁸ The acquisition was agreed upon convertible bonds.⁹

illustration not visible in this excerpt

Figure 1: source:own illustration based on SFCE's annual report 2014 and company homepage URL: http:// goo.gl/t4KJIk.

2.2 Financial Key Figures

Total revenue increased by 275.6 % from 1,529.676 million RMB in 2013 to 5,745.939 million RMB in 2014 which was achieved by greater sales volumes enabled by a growth in manufacturing and trading capacities via acquisitions, as to large-scale module producer Wuxi Suntech, and of newly integrated business units.¹⁰ SFCE’s EBITDA evolved rapidly from 151.890 mil- lion RMB in 2013 to 1,321.748 million RMB in 2014. Withdrawed depre- ciation, financing and re- structuring cost expenses give a hint on SFCE’s

illustration not visible in this excerpt

Figure 2: source: SFCE's annual results 2014 (2015), p.1., URL: http://goo.gl/vnjlNM. capital intensity and now less production facility expenditures¹¹ show that SFPV turned in its core into a financ- ing solar industry group called SFCE. Market share price got almost halved to 56.98 cent RMB¹² as off convertible bonds issued and capital dilution caused by a nominal increase in shares. In 2013 SFCEs’ equity ratio scored at 69.2% but went down to 45.7 % in 2014. 23.56 %i more outside capital was needed for SFCE’s expansion strate- gy to follow. Net debts of 1,857.380 million RMB in 2014 were relatively modest as per 1.4 ratio in accordance to the FYs’ EBITDA of 1,321.748 million RMB. More key fig- ures can be viewed in the embedded excel file “SFCE’s key figures” stored in the ap- pendix.

3. South Africa

3.1 Characteristics of South Africa

South Africa is the most southern country on the African continent. It has 7.7 times less land surface than China.¹³ The climate there is dry to subtropically humid.¹⁴ It is the 2nd largest economy after Nigeria of the African continent with an overall GDP of 366.1 billion USD and 53.16 million inhabitants according to the year of 2013.¹⁵ The popula- tion is off middle income. Unequal income distribution is reflected by the Gini- coefficient.¹⁶ A score of 65.0 like South Africa it has shows a high degree of unequal income distribution. Many people still have no or not sufficient access to fluent water, electricity and health care. As in the census of 2011 15.3 % of South Af- ricans fell short of elec- tricity.¹⁷ The country’s population is

illustration not visible in this excerpt

Figure 3: source: own illustration based on Auswärtiges Amt (2014): Südafrika, Wirtschaft, URL: http://goo.gl/NiYpH9. multinational and multi- ethnic. The government of South Africa acknowledged eleven national languages. Apartheid is still recognizable. To curb disadvantage of black people the government enacted BBBEE, a law that favours for everyone’s economic and legal equalisation.¹⁸ South Africa has a strong empowerment policy and active legislative creating frame- works that focus on the vision and mission for a better socio-economic development. NEPAD is one out of it.¹⁹ As the only one African nation being part of G20, South Afri- ca participates when finding solutions to improve economic and financial cooperation. Being partner of G20 and several other agreements makes it thus favourable for other economies doing business with South Africa due to high reglementation and policies achieved.²⁰ The corruption index is used to show a certain degree of preparedness for corruption in the public sector. The scale ranges from ‘0’points highly corrupt to ‘100’ points very clear: South Africa in there had a score of 44 points in 2014 compared to China’s 36 points. South Africa is close to the middle showing a certain correctness but a slight tendancy for corruption.²¹ The EU is the most important trading partner before China and USA. Stepping into South African market aims to enter other surrounding African markets. The illustration on page 5 highlights some of the major distinctive strength, weaknesses, opportunities and threats. When describing national culture manifestations Hofstede’s evolutionary 6-D model is often applied to define an individual corporate strategy that opens the mind for better appreciation of behaviours and attitudes among different nations.²² The main distinctions detected are the willingness to accept

illustration not visible in this excerpt

Figure 4: source: Hofstede's 6D-Model, URL: http://goo.gl/cJViHD. inequalities in power distribution, called Power

Distance; the importance of society in life, integration and identification with such, called Individualism; whether dominant motivating factors in society like hard factors (success) or soft factors (feelings) are given priority, called Masculinity; how societies cope with uncertainty and unknown situations, called Uncertainty Avoidance; the society’s attitude towards the modern and the willingness to accept changes, called Long Term Orientation, or the extent a society is driven by impulsory and desireful reflections, called Indulgence. Remarkable deviations as of the chart above can be seen in Long Term Orientation (∆ 53 points), Individualism (∆ 45 points), Indulgence (∆ 39 points) and Power Distance (∆ 31 points).

Interpretating these variances South Africa is more normative and linked to old traditions than China. While China permantly works on success like a process, success in South Africa is to achieve quickly, perseverant investing in future is less a topic in South Africa than China has its focus on. South Africans primarily care of their closest family and themselves or in unformal groups only. For them it is less usual to spent much efforts on mutual groups like Chinese care about relationships, sometimes leaving those out of the picture who do not participate in groups. Life is fun and joyful, positive attitudes, optimism and desires are stronger than control, South Africans give in desires easier than desire restraining Chinese. Both nations they accept power distance. Despite that, South Africa has a lower score there than China. The lower acceptance is due to bitterness of inequality perceived to be levied on disadvantaged minorities or blacks which may be defused with benevolence. Chinese would not try to tower to question their position, they accept.

3.2 South Africa’s energy market

South Africa’s target for 2030 is to install a total capacity of 40000 MW, thereof 17800 MW by renewables and among these figures 8400 to 9770 MW by photovoltaics. South Africa bears excellent potential in producing solar energy with a high solar radiation of approximately 2500 Figure 5: source: own illustration based on Department: Energy Republic of South Africa, URL: http://goo.gl/GUg9BN. sun hours per year and many unused surfaces for to build PV parks.²³ Yet renewables build the minority²⁴. As in 3.1. mentioned South Africa has a lack in sufficient energy supply and experienced several shortfalls in energy supply. Increasing demand and lack of competition tightens the situation. Still providing energy supply as usual leads to constantly upward shifting electricity prices. The energy mix is imbalanced.

[...]

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² Frankfurt School UNEP-centre (2015): Global Trends in Renewable Energy Investment 2015, URL: http://goo.gl/YWMJ2D, 08.04.2015, 22:42 p.m. and PV Magazine (2015), BNEF: Weltweite Solar- Investitionen steigen im ersten Quartal um 7 %, URL: http://goo.gl/xjHExR, 16.04.2015, 07:45 a.m.

³ PV Magazine (2015), Chinesische Dominanz pur: Trina Solar vor Yingli, Canadian, Hanwha Solarone und Jinko Solar, URL: http://goo.gl/UD1Wnl, 24.04.2015, 12:09 p.m.

⁴ Clean Technica (2015): China Introduces 70 % Solar Subsidy For The Poor, URL: http://goo.gl/ydDHO4, 14.03.2015, 18:09 p.m.

⁵ DENA (2014): Welche Geschäftsperspektiven haben Deutsche Photovoltaikunternehmen in Südafrika?, URL: http://goo.gl/D0svAZ, 12.04.2015, 17:22 p.m.

⁶ SHUNFENG INTERNATIONAL CLEAN ENERGY LTD. (2014), ANNUAL RESULTS, URL: http://goo.gl/vnjlNM, 19.04.2015, 14:11 p.m.

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¹⁰ Shunfeng International Clean Energy Ltd. (2014), annual results, URL: http://goo.gl/vnjlNM, p. 1, 19.04.2015, 14:11 p.m.

¹¹ Gräfer, H. et al. (2012):p. 58.

¹² Shunfeng International Clean Energy Ltd. (2014), annual results, URL: http://goo.gl/vnjlNM, p. 1, 19.04.2015, 14:11 p.m.

¹³ The WORLD FACTBOOK (2015), URL: http://goo.gl/wBIKum, 22.04.2015, 22:51 p.m.

¹⁴ Auswärtiges Amt (2014), Südafrika, URL: http://goo.gl/cbRC7D, 22.04.2015, 22:58 p.m.

¹⁵ Worldbank (2015): GDP (current US $), URL: http://goo.gl/ef81Mb, 22.04.2015, 18:13 p.m.

¹⁶ Arnold, R. A., (2014), p. 750.

¹⁷ Auswärtiges Amt (2014), Südafrika, URL: http://goo.gl/cbRC7D, 22.04.2015, 22:58 p.m.

¹⁸ The dti (2015): Economic Empowerment, URL: http://goo.gl/fWYMg2, 23.04.2015, 08:42 a.m.

¹⁹ NEPAD (2015): NEPAD transforming Africa, URL: http://goo.gl/zET7z1, 23.04.2015, 09:02 a.m.

²⁰ Auswärtiges Amt (2014), Südafrika, Wirtschaft, URL: http://goo.gl/UwNiRf, 22.04.2015, 19:58 p.m.

²¹ Transparency International (2014): Corruption Perceptions Index 2014: Results, URL: http://goo.gl/aUrSsb, 12:32 p.m.

²² Hofstede, G. (2015): Cultural Dimensions, URL: http://goo.gl/DnzE6C, 23.04.2015, 12:32 p.m.

²³ German Trade and Invest (2014): In Südafrika gehört erneuerbaren Energien die Zukunft, http://goo.gl/unt2Ct, 23.04.2015, 19:21 p.m.

²⁴ AHK Deutsche Industrie- und Handelskammer für das südliche Afrika (2013): Zielmarktanalyse Süd- afrika, URL: http://goo.gl/2RcC4U, P. 24 f., 01.05.2015, 12:58 p.m.