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Industry Evolution and Growth Strategies for International Solar PV
Module Manufacturers
Dan Baldauf
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Solar PV Overview
• Varied solar technologies
• Varied companies along the solar PV value chain
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Global Industry
Manufacturers in USA, Taiwan, Europe, China, Japan, India
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Literary Review
• Michael Gort and Stephen Keppler (Industry Evolution)
• Igor Ansoff (Growth Strategies)
• More recent academics were added to ensure theories were up to date.
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Research Methodologies
• Primary Sources (3 interviews)
• Secondary Sources (annual reports, market reports, academic literature, and internet searches)
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Industry Evolution (Gort and Keppler)
1. First commercialization of product
2. Rapid rise in net entry 3. Net entry
reaches approximately O
4. Period of negative net entry “Shakeout”
5. Net entry levels reaches approximately O
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International Solar PV Module Industry
*Data was collected from multiple industry directories and with internet searches.
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Stage 1 (1958-2001)
*1st crystalline solar module commercialized in 1958
First solar companies enter the industry
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Stage 2 (2001-2009)
In Stage 2 the number of module manufacturers increase from 120 to 340.
Rapid Rise in Net Entry
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Average Selling Price $/watt First Solar Trina Suntech Yingli SunPower Hanwha Canadian Solar
31/12/2007 2,48 3,80 3,72 3,86 4,48 4,42 3,7531/12/2008 2,37 3,92 3,89 3,88 4,71 3,92 4,2331/12/2009 1,75 2,10 2,40 2,00 3,63 2,24 2,1331/12/2010 1,49 1,75 1,82 1,75 3,59 1,75 1,8031/12/2011 1,26 1,33 1,51 1,43 2,94 1,41 1,34
Stage 2 (2001-2009)Price Decrease
From 2007-2011, average module prices decreased by 57%.
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*As over capacity increases, it makes it harder for companies to move inventory
Over Capacity
Stage 2 (2001-2009)
As prices decrease, companies seek to lower their costs, mainly with economies of scale (Keppler K. S., 2001).
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* Prices dropped faster than costs causing margins to be squeezed.
Stage 2 (2001-2009)Profit Decline
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• As companies increase their capacity and expand their businesses, they gain valuable experience.
• Their larger economies of scale also give them a cost advantage.• Incumbents with better resources and experience begin to dominate
innovation.
Stage 2 (2001-2009)Incumbent’s Advantage
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Outside the industry includes..•Research institutes•Universities•Inventors•Companies not manufacturing modules
Shifts in the Sources of Innovations
Stage 3 (2001-2012)
42%
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Unit 1
Unit 2
Unit 3
Process Innovation
Unit 4
Unit 5
Unit 6
Process Innovation
Unit 1
Unit 2 Unit 3
As companies have larger capacities, the incentive to make process innovations is greater. Each innovation can save costs or increase quality per unit created.
Stage 3 (2001-2012)Shifts in the Types of Innovations
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Product Innovations Still Relevant
Stage 3 (2001-2012)
*The rate of product innovations has been increasing. The diversity of innovations is also increasing.
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Static Optimum Shakeout
Stage 4 (2012-20??)
Exit rates increase while entry rates decrease. The intensity of the shakeout usually depends on the amount of innovation and demand in the industry. High amount of innovation lead to more intense shakeouts.
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Demand
Stage 4 (2012-20??)
Demand is likely to increase when the technology hits grid parity, or when it becomes as cheap as conventional power. Large amounts of demand allow for more growth opportunities, leading to higher survival rates.
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Consolidation
Stage 4 (2012-20??)
Demand will increase and more firms will exit so consolidation must occur. Few firms will occupy a majority of the market by the end of the shakeout.
Global Market Share Top 10 Global Share
2000 5%
2001 7%
2002 9%
2003 11%
2004 15%
2005 21%
2006 28%
2007 39%
2008 53%
2009 58%
2010 54%
2011 47%
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Differences
Industry Comparison
Some differences between the previously studied industries and the solar industry..•Shaped by international forces•Subsidy driven (unpredictable demand)•Higher acquisition rates
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Similarities
Industry Comparison
Some similarities between the previously studied industries and the solar industry..•Shakeouts also caused by innovation•High entry followed by high exit (Static Optimum Shakeout)•Significant entry will happen
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Early Entrants
Shakeout Survival
Other factors that influence survival are..•Early entry (experience and ability to innovate)•Economies of scale
SuntechFirst SolarTrina
Yingli
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Low Cost
Shakeout Survival
Some ways to lower costs..•Process innovation is the key during Stage 4.•Vertical integration allows better cost control, but less flexibility.•Companies lay off employees to lower costs.
SuntechFirst SolarTrina
Yingli
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Product Differentiation
Shakeout Survival
Companies can survive shakeouts by serving a niche area..•In the solar industry module efficiencies range from 14.0% - 20.4%•The three main solar customers are residential, commercial, and utility
SuntechFirst SolarTrina
Yingli
Residential Commercial Utility
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Growth Matrix
Growth Strategies
Igor Ansoff is regarded as the father of strategic management, and is most famous for his growth matrix.
Additional integration growth strategies will also be included to further build on Ansoff’s Matrix.
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Market Penetration
Growth Strategies
The term market refers to customer groups purchasing a product designed for a specific mission. The mission of solar modules is to convert sun light to electricity that then feeds into the grid. Market penetration strategies include.. •Increase sales to current customers•Find new customers•Foreign geographic markets are included
When a company seeks to increase the sales of their product in its current market. – Igor Ansoff
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Market Penetration
Growth Strategies
• Instead of using price reductions or promotions, companies should focus on maintaining a competitive advantage via innovation.
• Stage 4 is when process innovations are key. Firms should then focus on process innovations to become more efficient than their rivals.
• More efficient firms can make a better product offering which will ensure customer loyalty.• Small process innovations are the least risky way to grow a business.
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Product Development
Growth Strategies
•Small incremental product innovations.•If product is marketable no large risky product innovation needed.•Large product innovations only used when market is demanding them and technology is ready. Not to fix lackluster growth. •Acquisition as a product development strategy. Companies can acquire innovation from failing companies if there is still value.
Product retains the same mission, but characteristics of the product are changed to better serve the mission. – Igor Ansoff
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Market Development
Growth Strategies
•Commercial passenger planes to transportation planes. Non grid connected modules for solar industry. •Risks can be lower if synergies exist. •Similar to product development, market development strategies should only be used if the marketplace and technology are ready. •Non grid connected market too small.
An adaptation of a present product line, generally with some modification in the product characteristics, to new missions.– Igor Ansoff
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Diversification
Growth Strategies
•The riskiest strategy. •Categorized by “related” and “unrelated” diversification.
A simultaneous departure from the present product line and the present market structure.– Igor Ansoff
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Related Diversification
Growth Strategies
•Related diversification is when there are meaningful commonalities between the company’s core business and the new venture it is taking on. •Economies of scale and synergies can be achieved.•Technologically related companies use this to enter into new markets.
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Unrelated Diversification
Growth Strategies
•Unrelated diversification is when there are no meaningful commonalities between the company’s core business and the new venture it is taking on. •This involves a very high amount of risk. Failure rate of 90-99%. (Park, 2004).•This strategy should not be used to solve lackluster growth.
Solar manufacturers should avoid both types of diversification because they are in a high growth industry and they have limited funds from the shakeout.
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Backward IntegrationGrowth Strategies
Advantages: •Guaranteed access to supply •Access to more innovation•Cost savings•More control over quality
Disadvantages:•Expensive to integrate (Billions associated with polysilicon production)•Risk of failure associated with diversification•Reduces flexibility
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Backward Integration
Growth Strategies
Levels of Vertical Integration
Company First Solar Trina Suntech Yingli SunPower Solar World Q Cells LDKLevel of Vertical Integration Polysilicon Production Procured Procured Procured x - x - xIngot Production x x x x - x - xWafer Production x x x x Procured x Procured xCell Production x x x x x x x xModule Production x x x x x x x xInstallation of Large Power Plants x x x x x xRecycling x x
Companies can also use supply contracts.
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Forward Integration
Growth Strategies
This involves companies entering into installation.
Risks associated are: •Same risks with related diversification•Possible lack of distribution channels and expertise•Competing with customers
Benefits include:•Saving on the margins charged by installers•Industry output will grow and so will opportunities in this field
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Ansoff’s Strategies
Conclusions
• Least Risky• Process Innovations to gain competitive
advantage
• Small incremental product innovations• No large product innovations unless
market and technology are ready
✓
✗
✓
✗
• Should only be used if market and technology are ready
• Market too small but could become significant in the future
• Solar industry is a fast growing market • Not enough resources to diversify
because of shakeout
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Integration and Final Comments
Conclusions
Solar firms considering backward vertical integration should understand that the solar PV technology is far from finished evolving.
New technologies offer promise of better efficiencies and/or lower costs.
Generally speaking, solar companies with successful products should focus on improving their business efficiency along with small product improvements.
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THANKS FOR YOUR ATTENTION