Business analysis and strategy recommendation for Vestas:

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1 Date:2 nd ofmay2011 Authors: BenjaminWalch,bw83433 JoachimH.Skov,js83798 BusinessanalysisandstrategyrecommendationforVestas: AcomparativeanalysisofVestas expansionpossibilities intheu.s.andchinesemarket Supervisor: PhilippSchröder DepartmentofEconomicsandBusiness, BusinessandSocialSciences, AarhusUniversitet 1

2 Abstract Thewindturbineindustryhasinrecentyearsbeenproclaimedasoneofthesolutions toaccommodatethefutureenergydemand.especially,theclimate debatehascontributed tothepromotionofwindenergy;henceitproducesenergywithoutreleasinganyco 2 into theatmosphere. ThemotivationforthispaperwastoinvestigateVestas expansionpossibilitiesinthis highvelocitymarket.vestashasbeenanalyzedinacomparativeperspectivefromrespectively the American and Chinese market due to their development, and possible potential withinthewindindustry.severalcasestudiesfromsimilarmarketssuchasthecarindustry has been included to understand the different growth strategies applied and the success factors which eventually lead to growth. Factors such as quality and product introduction havebeenpointedoutashavingcreatedresultsinsimilarmarkets,andasaconsequence couldbebeneficialforvestas futurestrategicdecisions. Through our report, we have been building up a thorough understanding of how Vestashasmanagedtoexpandtheirbusinessinamarketwhereseveralfactorslikepolitics, economics, and demand, has affected the process of producing renewable energy on a globalscale. FindingsfromthePESTELmodelshowthatespeciallytheimportanceofthepolitical and economical involvements is crucial for the further development and growth. Without political incentives for growth, and economical support for project execution, the wind industrywouldneverhaveachieveditsstatus. Asforthemarketforces,findingsshowedthatespeciallyallthenewentrantsfromthe emergingchinesemarketimposeathreatthatvestasshouldbeawareof.astheanalysis shows,vestas,howeverstillholdsaleadingposition,eventhoughthecompetitionandthe influentialfactorshasbeenmoreprevailing.porter sfiveforceswerealsousedtoevaluate some of Vestas strengths. Being born global Vestas has through many years expanded their portfolio, which has contributed to the advantage of providing the right products at therightplaces. ThroughtheOLImodel,Vestas globaladvantageswerespecified.findingsshowthat Vestas has gained a significant amount of know how that has contributed to the developmentoftechnologyandinternationalization.beingasinternationalastheyare,vestashas 2

3 keptthefocusontheturbineindustry,withoutengaginginanyothermarkets.theirchoice with regard to in house production and vertical integration has been a good strategy for ensuringproductqualityandsupply. ASWOTmodelcollectsthefindingsfromthepreviousanalyses,andsumsuponthe differentfactors,inordertoprovideaprecisepictureoftheinternalandexternalelements thatvestasshouldimproveon.inrelationtothis,theresource based view(rbv)hasbeen appliedinordertoevaluatevestas strengths.acritiqueoftherbvisalsodiscussed,since thetheoryanditsimplicationhasbeentargetfordebate. TheimplicationofthereportsuggestedthatVestasthroughadifferentiationstrategy incollaborationwithsmallcompaniescouldensurefuturegrowthandrevenue. 3

4 Tableofcontent Abstract...2 Tableofcontent...4 Listoftable Introduction ProblemStatement ProblemStatement Problemdefinition Literaturereview Delimitation Theory Vestas Vestas History ContemporaryVestas Whywind? Areviewofthewindindustry Thewindindustry WindpowerinUSAandChina Analysisanddiscussion Political Economical Social Technological Environmental Legal ConclusionPESTEL PortersFive Threatofentry Thepowerofsuppliers Thepowerofbuyers Thethreatofsubstitutes Rivalryamongexistingcompetitors ConclusionofPortersFive Theeclecticparadigm Ownershipadvantages Locationadvantages Internationalizationadvantages SWOT Strength AssessmentofVestas strengthsfromaresource based view Weaknesses

5 4.4.3.Opportunities Threats Recommendations Conclusion References Table1,Vestas marketshare Listoftable Table2,Thetop10turbinesuppliersintheperiod Table3,InstalledcapacityintheU.S. Table4,InstalledcapacityinChina Table5,Pestelmatrix Table6,InstalledcapacityandtheeffectofthePTC Table7,Coststructureforawindturbine Table8,CO 2 EmissionfortheU.S.andChina Table9,Queueforgridlineexpansion Table10,EstimatesofwindcapacityinChina Table11,Overviewofsuppliers Table12,Supplier sgrowth Table13,Capitalcosts Table14,Rankingofenergysourcesbyprice Figure15,AllocationofU.S.windresources Table16,Generationcosts Figure17,Marketshare2010 Table18,U.S.marketshares Table19,Turbineoverview Table20,Allocationofinstalledcapacitybyturbinetype(MW) 5

6 1.Introduction The awareness of the global situation with respect to climate, economy and politics hasnotreceivedsomuchattentionasinrecentyears.thesefactorsarealsohighlyinfluen analysis of the industry with respect to Vestas current and recommendation for future strategies.theanalysisiscenteredoncomparisonofthechineseandtheamericanmarket applying available analytical and strategic tools and models to obtain a comprehensive foundationonwhichtodrawconclusionsonthecurrentandfuturestrategies. 2.1.ProblemStatement 2.ProblemStatement Theproblemstatementofthisbachelorthesisdealswiththeexpansionpossibilitiesof Vestas,whichisoneoftheworld leadingsuppliersofwindpowersolutions.theanalysisof tialonthewindturbinesector,whichthispaperputsfocuson.thedanishturbinemanufac turervestasistheworldleaderinthisindustry,andthecontentofthisreportisathorough thissubjectisbasedonacomparativeanalysisoftheu.s.andchinesemarkets.toaccomplishthistask,wearelookingatthemarketsthroughdifferentcasestudymodels,suchas PESTEL,Portersfive,SWOTandOLI We wish to investigate how the market dynamics have changed through numerous factors,whichwillbediscussedfromthemodels. Currently, Vestas is the world leading turbine manufacturer, but the fast expanding market within renewable energy, has increased the competition, and the analysis will therefore provide a picture of how Vestas should position themselves in the years to come.we have chosen an up to date topic due to its relevance in relation to the current globalfocusonclimatechange,greenenergyandco 2 emissions. 6

7 2.2.Problemdefinition Therecentfocusonrenewableenergyhasincreasedthecompetitiononthemarket forwindenergy.asaconsequencevestas positionasmarketleaderisthreatened.inorder toremainthemarketleader,vestasareforcedtoactandimplementastrategythatwill; Maintaintheirpositioninthemarket. Dealwithhowtoensurefuturegrowthandrevenue. Accomplishinternalgoals. Throughourresearch,thecurrentmarketsituationisanalyzed,andtheactionsthat Vestasneedtoundertake,forreachingthedesiredsituation,willbeclarified. 2.3.Methodology By conducting an analysis of Vestas expansion possibilities, through a comparative analysisofthetwofastestgrowingmarkets,thisreportaims,throughanumberofexisting strategic models, to explain the different factors that affect the future possibilities for growth. The reasoning for a comparative study is to gain the best understanding of the marketdynamicsanddiversityofthemarkets. As described in the problem statement, the aim of this report is to evaluate Vestas futurepossibilitiesinthemarketforwindenergythroughananalysisconductedbyavariety ofstrategicmodels.thedifferenttheoriesapplied,servethepurposeofcreatinganoverall assessmentofvestasthroughwhichitispossibletodescribevestasfromdifferentaspects withrelationtotheirstrategy.nevertheless,thetheoriesappliedinthereportsupplement each other to the common goal of analyzing and answering the content of the problem statement. In order to analyze the market environment and dynamicsthat affect the turbine industryinchinaandtheu.s.,thepestelmodelhasbeenapplied. Portersfiveforceshasbeenanalyzed,fromVestas pointofview,toprovideaframeworkthatmodelstheindustry,andinvestigateshowtheindustryisbeinginfluencedbyfive differentmarketforces,withrespecttocompetition. 7

8 To make suggestions on where Vestas could develop an edge over the competitors, the five aspects in the framework help to reveal where Vestas should strive to get a competitiveadvantageintheindustry. We included the OLI paradigm by Dunning, to get a global overview of the strategic advantagesthatvestaspossesses. The last and summarizing model in our report is the SWOT. Here all the important findingsaregatheredanddividedintoaninternal(sw)andexternal(ot)view,inorderto presentasclearapictureofvestasaspossible. Wehavespecificallychosenthemodelswithanapproachtomarketanalysis,dueto thedynamicsoftheindustry.furthermore,byincludingtheoreticalaspectsfromothercase studies, the combined analysis creates an overall view on the possibilities for further growth. The report also provides a description of the past, present, and future development,andgivessuggestiontothestrategicconsiderationsthatvestasshouldmakeinthe futureinordertoremaintheleadingturbinemanufacturer. 2.4.Literaturereview In order to obtain an initial overview of the global market trends within the wind energy, reports by BTM Consult (2009), International Energy Agency and Global Wind EnergyCouncilhavebeenapplied.Thesereportsgiveaninsightintothemarket,comment ongrowthandassessfutureoutlooksforthemarket. The market environment in China has been described by several scholars. A more specificoverviewisprovidedbycheung(2011)andbyliandma(2009),whobothpointout thehighdemandforelectricityinchina.thehighenergydemandisthemainfactorresponsibleforthecurrentsuccessandgrowthwithinonshoreenergyandtheincreasedgrowthof thismarket(han,mol,luandzhang,2009).theinstitutionalsystemandpoliciesforwind, and their effect were analyzed by Liu and Kokko(2010) and Levine and Price(2010). The casestudybyshileiandyong(2009)analyzesthegovernmentalsettingsandviewonenergy.thethreatoftheimitationinrelationtoeffectonipronfdiinchinahasbeenanalyzed byawokuseandyin(2010). TheU.S.DepartmentofEnergyhassuppliedthemaininformationconcerningtheU.S. market,whilefurtherestimatesoftheu.s.windresourceshavebeenconductedbyarcher 8

9 and Jacobsen (2003). The issues with regard to the U.S. offshore possibilities have been assessed by Portman, Duff Köppel, Reisert and Higgen (2009). Both the U.S. and Chinese markets were limited by their grid connections which are required for a successful implementationofwindenergy.apossibleoptioninoptimizingtheimplementationprocesswas assessed through the theory presented by Sivasubramanian, Selladurai, Gunasekaran (2003). The various economical aspects of wind energy have been analyzed by Krohn, Morthort and Awerbuch on behalf of the European Wind Energy Association (2009), whereas recent supply chain trends have been discussed by (Clarke, 2009) and Douglas WestwoodLimited&BVGAssociates(2006).Anoverviewofthepricelevelsamongenergy sourceshavebeenconductedbyapplyingnumbersfromsovacool(2009)andsim,rogner andgregory(2003) Strategic models from Lynch(2009), Porter(2008), Hill(2009), and Hoskisson, Eden, LauandWright(2000)havebeenusedtoevaluatethestrategyinemergingmarkets.Vestas advantages have been evaluated by the resource based view (RBV) by Barney and Clark (2007),whileBarney(2001)hasbeenincludedtoassesssomeofthecritiqueofRBV.Case studiesbyhill(2009),buckleyandhorn(2009)andphongpetraandjohri(2011)havebeen appliedtocomparethewindenergyindustrywiththecarindustry,andfuturepredictions and recommendations have been concluded there from. The threat of disruptive innovations has been evaluated on the basis of Christensen s Innovators dilemma from Delimitation The research of this thesis is based on an analysis of the wind turbine market, seen fromtheperspectiveofvestas.theamountoftheoryinourthesisisduetotheextentof the paper, limited to only representing a few examples within each topic. Although, our findings must not be perceived as generalized conclusions, the examples would only functionasrepresentativefindingstoshowtendencieswithintheindustry. Finally, this report acknowledges that the analysis and suggested solutions are interpretedaspossiblewaystogoinstrategicmanagement,andnotasconcretesolutions, 9

10 since it would require much more in depth research to provide an overall suggestion to a strategicsolution. 3.1.Vestas 3.1.1Vestas History 3.Theory TheDanishwindmillmanufacturerVestashasalongandremarkablehistory.Thefirst smallstepsweretakenin1898inalittledanishtowncalledlem,sincethen,thelongroad tosuccesshashadmanyup sanddowns.economicalsetbacks,managerialproblems,fusionsandmostofallthecouragetobeapioneerinanundiscoveredmarketforwindenergy hasbeensomeofthekeywordsforvestasexistence. Vestasfirstcameupwiththeirnamein1945,andtheactualproductionofwindmills did not start until 1979, where the pioneers due to an oil crisis, saw an opportunity to embarkonawindmilladventurethatinthefuturewouldpositionvestasasaglobalmarket leader within wind energy. The history behind Vestas is though much more complicated, andasthereportwillshow,therehavealwaysbeenmanyfactorsinfluencingthisindustry. Fromthelate70 swherevestasdecidedonlytofocusonproducingwindmills,thecompany developed rapidly (Vestas history, n.d.). The mills were continuously improved and made moreefficient,andwithinafewyears,vestasexpandedtootherpartsoftheworldsuchas EuropeandtheU.S..TheNorthAmericanmarketwasoneofthemostlucrativemarketsat the time, and Vestas established themselves as being one of the world leaders within renewable energy, but as many times before (and many times to come) Vestas ran into troubles with governmental subsidies and with the mechanical equipment. This meant major setbacks on the market, and Vestas was forced to take action, but despite several bumpsontheroad,vestasenteredthe21 stcenturyasthemarketleaderinwindenergy (Vestashistory,n.d.). Themarketforwindenergygrewquicklyinthestartofthe21 stcentury,andvestas realized that the competition became fiercer. After having survived several internal and financialcrises,vestasdecidedtomergewiththeotherdanishwindturbinemanufacture, NEGMiconA/S.ThemergerwithNEGMiconwasabigmouthfulsincebothcompanieswere 10

11 inaweakfinancialposition.itwasaturbulenttimemakingtwointoone,andhavingtwo boards of directors did not ease the situation. This lead to several layoffs, and a hiring of DitlevEngelasthenewpresidentandCEOofthecompany.ThedecisionofmakingDitlev EngelthenewCEOofthenewcompanywasabreathoffreshair,andmanywouldclaim thathe,atthattime,savedthecompanywithhisnewvisionandstrategieswhichwere;the WillToWin(Sønnichsen,2009). Ditlev Engel continued to strengthen the united Vestas, and with an aggressive expansion approach, introducing new strategies, visions and branding (No. 1 in Modern Energy)hekeptVestastheworldleaderinmodernwindenergy ContemporaryVestas During the recent years, Vestas current strategy No.1 in Modern Energy and the formerthewilltowinhasbeenchallengedbothbythefinancialcrisis,upcomingchinese competitorsandgeneralelectrics (GE)evergrowingpresence,butVestasstillremainsthe world s leading wind turbine manufacturer (Make Consulting & BTM as cited in Windfair, 2011).TheoverallstrategyNo.1inModernEnergyaimsatbeingthebest,havingthemost satisfied customers, the lowest cost of energy, and being the market leader within wind power(vestasstrategy,n.d.). Vestas vision is to place wind on an equal footing with gas and oil as an energy source. Currently, only about 2 per cent of the world energy consumption is produced by wind energy. If the political decisions are made to expand the power grid, and thus give accesstoattractivewindlocations,vestasexpectsthatthissharecanincreasetoatleast10 percentby2020(vestasvision,n.d.).theusdepartmentofenergy(2008)expectsthat20% oftheelectricityinthecountrywillbewindpowergeneratedby2020,whereastheaimin Chinaisbetween %(Li&Ma,2009;Cheung,2011).ThefinancialtargetsforVestas No.1inModernEnergystrategyweredefinedonOctober2009,asTriple15.Theaimwasto achieveanebitmarginof15percentby2015withcorrespondingrevenueof 15billion; furthermore an annual growth of 15% is required. Triple 15 is crucial for ensuring Vestas positionastheworld sstrongestenergybrandandmanufacturerofwindturbineandgreen energysolutions.triple15willbeachievedthroughamorecustomer orientedorganization wherecustomerloyalty,reaching6sigmaandabroadproductlineconsistingofdifferent classesofwindturbines,arenecessaryinordertomeetregionaldemands(vestas,2010a). 11

12 In2010Vestasgeneratedanimpressive 6.920millioninrevenues,whichcompared to2009wasnearlya 2.000millionincrease,andprofitswere 156million(Vestas,2011). Vestas was the same year obliged to change its accounting principles for revenue recognitioninordertobeconsistentwithstandardsfordanishlistedcompanies.thenewstandardsinternationalfinancialreportingstandards(ifrs)andinterpretations(ifric)changed how and when revenue was recognised. The new policy only recognises revenues when Vestasdelivers,installsandpassestherisktothebuyer,andnotduringthecompletionof work as previous. As a consequence, the accounting principles have slightly changed the financial numbers for 2010 (Aktionærinformation 1, 2011). The implications will be discussedlateron. Duringtheyear2010,atotalof4.057Megawatt(MW)wereproducedandshippedby Vestas.DespitethefactthatitwasthelowestshipmentofMWinthelastfiveyears,Vestas secureditsproductionfor2011witharecordhighincreaseof182percentinorderintakes. The order intakes in 2010 comprise 8.673MW placed in legally concluded orders which is expected to generate shipments for 6.000MW in fiscal year 2011 (Vestas guidance, n.d.). Energias de Portugal Renováveis, one of the biggest utility companies within renewable energy, placed the most spectacular order comprising 1.500MW and the possibility of an additional 600MW. Receiving this order generated more than just profit, since it also illustratedthatvestasareinfavourforsupplyinglarge scaleprojects(aktionærinformation1, 2011). Globally, a total estimate of MW is installed whereof Vestas is accountable for44.114mworroughly22%.ithasbeenestimatedthatthetotalpowercapacityinstalled willreach mwinyear2020andthiscallsformoreandsustainableenergysources (Vestas,2011).Vestasservedatotalof212customersin2010,andduetothenatureofthis industry,customerloyaltyisessential.vestas targetisa75%customerloyaltyby2015and thelevelhassince2009beenstableat64%(vestas,2011).althoughacustomersatisfaction of64%isimpressive,itisnotacceptablesincethegoalwastoreach70%within2010,and thusvestasisforcedtoimproveradicallyinordertoreachthetargetgoalof72%in2011 (Aktionærinformation1,2011). AccordingtoBentErikCarlsen,TheChairofBoardsofDirectors,Vestasmaintainedits leading position due to regionalisation of the production and the dedication to quality, research and technology development. (Vestas, 2011). Consistent with regionalisation of manufacturing,vestas ForeignDirectInvestment(FDI)inChinaandtheUSduring2010was 12

13 atotalof 789million(Vestasstrategy,n.d.).Theincreasedregionalisationisknownunder the slogan In the region, for the region which describes the strategy of being located wherethemarketdevelops(aktionærinformation2,2011). Table1,Vestas marketshare Europe,Africa Americas AsiaPacific,China Marketshare(byMW) 49% 29% 22% Source:(Vestas,2010) Table 1 from the Annual report 2010 shows Vestas current market share by region andthuswhytheregionalisationandfurtherinvestmentinmanufacturingwasanimportant step,sincethemarketsinamerica,asiapacificandchinaaretooexpensivetosupplyfrom Europe with a reasonable cost structure and thereby a competitive price. The division of areasisrathersimplified,sincevestas globaloperationsonlyaredividedinthreemarkets. In 2010, people on average worked directly for Vestas and were located in sales, R&D or production units among others in Denmark, Spain, Germany, the U.S., SingaporeandChina.Attheendofthefiscalyear2010,23.525wereemployed,whichis nearlyanincreaseof3.000comparedto20.730inyear end2009(vestas,2011).inorderto ensurethededicationtowardsquality,morethan10.000employeesattheendof2010had participated in workshops and received training in Sigma Six and Lean Management and thus will enable quality improvement and build a corporate culture where reduction of costs,errorsandleadtimeareexercised(vestas,2011) was also the year where Vestas invested heavily in R&D. In total were employed in Vestas Technology R&D at the end of 2010 compared with in In order to secure regionalisation, Vestas has R&D departments in seven different countries includingtheusandabrandnewfacilityinchina,thusensuringadiverse,skilledandglobal researchteam(vestas,2011).theintenseinvestmentinr&dfacilitiesworldwidewasnot withoutitscost.the 789millioninvestmentinR&DinChinaandtheU.S.willdecreasethe EBITmargin,whichcollideswiththetargetsforTriple15,butisnecessarytoassureastrong EBITinthelong term(aktionærinformation2,2011). OnthefinancialmarketVestas shareswereamongtoptenmosttradedintheomx Nordic40index.59%whereheldbyinternationalshareholders.Comparedto2009thiswas adecreaseof9%,butvestasintendstoincreaseinternationalownershipinordertobeless 13

14 DanishandmoreinternationalsothattheownergroupreflectsVestasinternationalnature and operations (Vestas, 2011). The stride for internationalisation can also be seen in the aims for cultural diversity within the organization, which is also a part of TRIPLE 15. Currently 49% of top positions within Vestas are occupied by non Danes (Vestas, 2011). Vestas products are not off the shelf wind turbines, but delivered in a package solution, resembling of a turnkey project. To start with, Vestas analyses the surrounding environmentinordertodelivertheoptimalwindturbine.withproductsrangingfrom850 KW turbines to 3.0MW both on and offshore, options can provide spot on products for everypossiblescenario.afterconstructionvestasstillmonitorsandmaintainstheturbines (Vestaswindpowerplants,n.d.). 3.2.Whywind? The benefits accompanying wind energy are many, and seen in a retro perspective pictureoverthelastcoupleofyears,wherefossilenergyhascontributedtoglobalwarming, lung diseases due to air pollution, acid rain and waste products, the promotion of wind energyisgettingmoreandmoreattention(krohn,morthorst&awerbuch,2009). WithemergingmarketsandrapidlydevelopingeconomieslikeinIndia,China,Mexico, Poland and Turkey, the demand for energy is at an all time high. Especially, it is hard to exaggeratethegrowingimportanceofchina seffectontheglobalenergymarket.in2000 thecountry sconsumptionwashalfofthatintheu.s.,butin2009,chinaovertooktheu.s. in becoming the world s largest energy user (International Energy Agency [IEA], 2010a). Prospectsforcontinuedgrowthinsomeofthemostpopulouscountriesintheworld,and thus increasing demand for energy, combined with recent acknowledgements concerning CO 2 and minimizing environmental burdens, wind power is one of the realistic options withinrenewableenergy. Windpowerhasthroughinnovationandimprovedtechnology,reachedalevelwhere thecostperkwhisattractive,especiallyonshorewindturbines.anin depthanalysisofthe coststructurewillbeprovidedlaterinthepaper. The price for wind energy has the advantage, that unlike fuel and coal, it is rather reliable and unaffected by political turmoil, and as a result wind turbines are a perfect 14

15 supplementfortheenergyportfolioofacountry(vestasprofile,n.d.).theargumentapplyingtotheenergyportfoliosharesthesamefeaturesastheprocessofinvestinginstocksand bonds. The aim of the energy portfolio is a better and more stable balance between risk andincome,toachieveminimalfluctuatingenergyprices(krohnetal.,2009).costsincurring during the production of the turbine itself, is affected by government incentives and subsidies,butoncecompletedthepriceisstableandquiteunaffectedbythesurrounding politicalandfinancialclimate. Furthermore,windturbinesarefastertoimplementcomparedtoconventionalpower plants.within12monthsawindturbinecanbeupandrunning,andstartgeneratingreturn on income (ROI). In fact, a 3MW turbine from Vestas can pay itself more than 35 times during its life time which is approximately 20 years. (Vestas profile, n.d.). Finally, wind powerisclean,andafterproduction,theturbinesdonotreleaseanyco 2 orothergreenhousegasses.duringthefirst3 6monthsofoperationtime,thewindmillhasequalledthe amountofco 2 usedforsetup.unlikenuclearitdoesnotconsumehugeamountsofwater, whichinitselfbecomesascarceresource. Thewindturbinedoeshowevermeetsomerestrictionsandisoftencriticizedforits self proclaimedsolutionfortheworldsdemandforcleantech.someoftheproblemswith windpowerarethattheturbineshardlyliveuptotheirpromisedcapacityduetoinefficient wind.inrelationtothat,demandandproductionofelectricityarenotcorrelatede.g.energy consumption does not increase during windy times and decrease visa versa(rosenbloom, 2006). 3.3.Areviewofthewindindustry Thewindindustry Governmental directives and subsidies, involvement from members of G20 and climate organizations have all contributed to the large focus on sustainable energy. The globalmarketforwindenergyisgettingmoreattentionthaneverbefore,andthepolitical emphasis on securing a greener future has reached new heights. During the last seven years,thenumberofinstalledwindcapacityhasbeengrowingonanaverageannualrateof 27%(DOE, 2008). In the wake of the financial crisis and the threat of climate change, the 15

16 COP 15 meeting in Copenhagen 2009 haditsmainfocusonreachinganagreementabout reducing greenhouse gasses, and preventing the temperature from rising further (BTM, 2009). From Vestas point of view, this increased attention has so far been very positive, sincetheenergyproducedfromwindmillistotallyco 2 neutral. In the USA, the election of President Barack Obama has given rise to Vestas for increasing their possibilities for further development and expansion on the American market,sinceoneofobama selectionpromiseswasagreenerfuture.thoughthismarketis highlydominatedbygeneralelectric,vestashasmanagedtotakeastrongposition,being thesecondlargestproviderofwindenergyafterge(globalwindenergycouncil[gwec], 2010). The Chinese market is characterized by the aggressive investment in green energy from the government, which makes Vestas future seem very lucrative (Aktionærinformation 1, 2011). The Chinese market is at the moment the biggest market in demand for wind energy, but with three fast growing domestic producers (Dongfang, Goldwind and Sinovel)ithasbecomeharderforVestastoexpandonthismarket(Krøyer,2010). Itsnoticeablethatonlyonecompany(Vestas)isrepresentedasoneoftheleadersin almost every region in the world, and is therefore considered as a global supplier (BTM, 2009).Vestas declineinmarketsharesisnotnecessarilytobeseenasaweakeningofthe company,butitisjustafactthatwithallthenewentrants,especiallyinchina,almostevery top ten company has lost market shares in the last years. In 2008 the top ten companies supplied 85.8% of the global demand, but due to the trend of an intense growth in new entrants,whichhasbeenfacilitatedthroughanincreasingdemandforwindturbines,new companies will, in theory, enter the market until it has been saturated. Therefore, even though top 10 companies will experience growth, this trend will push the entire market towardsamoreequaldistributionoftheglobalmarketshareandthetop10companieswill accountforasmallerfractionofthetotalsupply,withtheassumptionthatnocompanies concludeanym&a(btm,2009). 16

17 Table2,Thetop10turbinesuppliersintheperiod Rank Share2008 Share2009 Share Vestas(19.8%) Vestas(12.5%) Vestas(12.0%) 2 GE(18.6%) GE(12.4%) Sinovel(11.0%) 3 Gamesa(12.0%) Sinovel(9.2%) GE(10.0%) 4 Enercon(10.0%) Enercon(8.5%) Goldwind(10.0%) 5 Suzlon(9.0%) Goldwind(7.2%) Gamesa(7.0%) 6 SiemensWind(6.9%) Gamesa(6.7%) Enercon(7.0%) 7 Sinovel(5.0%) Dongfang(6.5%) Dongfang(7.0%) 8 Acciona(4.6%) Suzlon(6.4%) Suzlon(6.0%) 9 Goldwind(4.0%) SiemensWind(5.9%) SiemensWind(5.0%) 10 Nordex(3.8%) RePower(3.4%) UnitedPower(4.0%) Others(17.6%) Others(18.5%) Others(22.0%) Total 111.3% 97.2% 101.0% Sources:(BTM,2009;BTM,2010;BTM2011ascitedinWindfair,2011) As the table 2 shows, the distribution of market shares has changed in the recent years.thereasonbehindthesechangesisasmentionedduetotheriseofnewcompetitors. Manycompaniesoutsidethetoptenhavebeengrowingrapidly,andhavecapturedmarket shares in their domestic countries. Sinovel, Dongfang and Goldwind, all Chinese turbine manufactures,havebeenclimbinguponthelistwithbigsteps,whilevestasandgehave remainedinthetop.itisnoticeablethat Others referringtothecombinedshareofother smaller companies, have been steadily growing. China and USA are the biggest growing markets, with Sinovel, Goldwind and Dongfang controlling around 60% of their home market,andgewindcontrollingaround44%oftheamericanmarket. Themarketshareoftheindividualsuppliersiscalculatedbydividingtheirquantityof MW sdeliveredintothetotalrecordedinstallationinthemarket.itshouldbetakeninto considerationthatturbineswillalwaysbeunderconstructionandnotyetinstalled,therefore not calculated in the markets total recorded instalments, which explains the reason whythetotalsumforthequantitysupplieddoesnotexactlyreach100.0%oftheinstalled capacity (BTM, 2009). Another remark is that a company does not have to be globally 17

18 presenttohavebigmarketshares,iftheyarestrongontheirdomesticmarket.successis notjustamatterofsize,butitdefinitelyalsoreliesontechnology,developmentandfocus. Tomaintaintheirpositionasthelargestsupplierofwindenergy,Vestashasinvested heavilyinthechineseandamericanmarketinordertostrengthentheircompetitivepower (Vestas,2011).Theforeigndirectinvestment(FDI)inthesemarketsisastrategythatVestas has chosen since these markets are the fastest growing. The investment is not just to expand,butitisanecessityforvestastokeeptheircompetitiveposition.anotherreason that has affected Vestas choice of markets is the governmental support that the Chinese and American markets provide. Furthermore, tax advantages and building production facilities in these countries will also spare Vestas for the high cost of transportation and logistics(vestas,2011). The market for wind energy is currently dominated by three specific areas; Europe, North America(U.S.) and Asia(China and India). In 2009 these three areas accounted for around 86% of the total installed capacity of wind energy. The dispersion of commercial wind farms is now close to operating in 80 countries, which inclines that many countries haveembracedthebenefitsandattractivenessofwindpower.thiswillintimestrengthen the economy of these countries, which creates job opportunities and attracts investors (GWEC,2010).Unfortunately,notallcountrieshavethesameconditionsandprerequisites to execute projects. International protocols do however give these countries the opportunitytoreceiveforeigninvestmentsandmakeachangeforthebetter,andtherebytakea big step towards becoming more environmental friendly and less independent on other energysources. Aninterestingdevelopmentinthewindindustryconcernsthefactthatmanufactures are becoming more distinguished due to the focus on using vertical integration, meaning buying out suppliers of critical components. This development gives the companies more securityonhavingthecrucialpartsintime,whichagainimprovestheflexibility,notonlyon beingcapabletoexecutetheorders,butalsoonimprovingtheproductdevelopment.being lessdependentonothersuppliersimpliesthatthecompaniesbecomemorecompetitiveby thefactthatthepricescanbelowered.furthermore,thecomponentscanbeproducedwith thewantedqualityandintimewhentheorderscomesin(clarke,2009). The structure of the wind industry is somewhat blurred due to the fact that the turbine manufacturers and utility companies both can act as manufacturers, owners, 18

19 operators and developers. In either case the process starts with the manufacturing of the turbines. The manufacturing market is dominated by a few large suppliers (such as GE, Gamesa,Vestas,Siemens,Dongfang,andSinovel),whicharelocatedintheareaswiththe largestgrowthandactivitywithintheindustry.themanufacturersdependontheir1 st tier suppliertoprovideessentialcomponentssuchasgearboxes,generators,transformersand cabling,totheturbine.furtherupthesupplychain,the2 nd tiersupplierdeliversnecessary partstothe1 st tiersuppliers,suchasfixings,flanges,electricalcomponents,machineparts andrawmaterial(douglas WestwoodLimited&BVGAssociates,2006). Afterconstruction,theturbinesarehandedtothedevelopers,whichareresponsible for establishment of the turbines, involving the final completion or construction stage. As mentioned earlier, turbine manufacturers can also offer full turnkey projects to the final ownerandthusfillthepositionofthedeveloper.ownersaretypicalutilitycompaniesthat have an interest in using wind energy in either their own portfolio, or due to renewable energy obligations. Smaller projects are typically owned by private companies, whereas a consortium of companies buys the largest projects. Operators provide the daily mainte nanceandday to dayoperation.developers,manufacturersandownerscanfulfiltherole of operator. The supply options therefore enable numerous opportunities for companies thatareinterestedinimplementationofwindturbines(douglas WestwoodLimited&BVG Associates,2006) WindpowerinUSAandChina WhyisUSAandChina,fromVestas perspective,sointeresting?asmentionedearlier, Vestas internalmarketshareisonly29%and22%inamericaandasia,respectivelywhile nearly50%ofmanufacturedturbinesaresetupineurope.giventhesenumbersoneought to believe that Europe would be more lucrative for Vestas. However, due to the fact that ChinaandtheU.S.arerespectivelythe1 st and2 nd biggestconsumerofenergyintheworld, andsimultaneouslyinterestedinimplementingwindpowertotheirenergyportfolio,these twocountriesarehighlyattractiveforvestas(iea,2010b). DuringtherecenttenyearstheU.S.windindustryhasexperiencedanunprecedented growth due to governmental support represented by tax policies (GWEC US, n.d.). From 2008till2009,theU.S.outranGermanyastheworldleaderininstalledwindcapacitybutin 2010themarketsloweddown.(BTM,2009).TheannualtotalinstalledcapacityintheU.S. 19

20 of5.115mwin2010(40,180 35,169=5,115)matchedhalfofthe10.000MWinstalledin Table3,InstalledcapacityintheU.S. Year MW 2,578 4,274 4,68 5 6,372 6,725 9,149 11,575 16,824 25,237 35,169 40,180 Source:(GWECUS,n.d.) The table 3 shows the cumulated development in installed capacity, on the U.S. market.theslowdownoftheindustryconsequentlymeantthatchina,in2010,surpassed the U.S. as the country with the largest installed wind capacity. Despite the decrease in installedcapacityin2010,newfirsttiersuppliershavecontinuedtoenterthewindindustry. As a result of this, more than 400 U.S. manufacturing plants serve the industry in 2010 (GWECUS,n.d.).Currently,windenergyproduces2%oftheU.S.energydemand,butthe U.S.DepartmentofEnergy(2008)havereleasedareport,showingthatwindenergycould generate 20% of the country s required electricity by With a potential capacity for furtherexpansionandissuingofgovernmentalpolicies,thefuturegrowthforwindenergy in the U.S. should be secured and thus, it should be an attractive market for Vestas to engagefurther. Looking at China, they overtook the U.S. in 2010 as the country with the highest energyconsumptionintheworld.thegrowthwithinthewindindustryfrom2000till2004 wasratherunimpressive.intotal418mwwasinstalledduringthisperiod,whichis2.5%of the16,482mwinstalledin2009(thenumberscanbeseenintable4).therecentfiveyears developmentwastrulyastonishing.since2005thetotalmwinstalled,hasbeendoubledon anannualbasisandin2009chinaaccountedforathirdofthe37.5gwinstalledworldwide (EnergyDaily,2010).TheexplodinggrowthinChinaandtheslowdownintheU.S.resulted, asmentioned,inchinabecomingworldleaderinwindcapacityinstalled. Table4,InstalledcapacityinChina Year MW Source:(GWECChina,n.d.) 20

21 The growth in China has been obtained on the same basis as in USA through governmentalenergypolicies.thefirstrenewableenergylawsarefrom2006(gwecchina, n.d.).thispartlyensuredarapidandaconsecutivegrowthinwindindustryofatleast100% within the industry during the recent years. The development of offshore wind projects is backed up by strong governmental support in order to access and harvest the wind on China s Eastern coast. The first project was launched in 2010 and the so called Shanghai Donghai Brigde Offshore wind farm was the first offshore project outside Europe (GWEC China, n.d.). The willingness for both off and onshore wind farms and governmental support,makeschinaextremelyattractiveandinterestingforinternationalfirmstoinvest in.aslijunfeng,secretarygeneralofthechineserenewableenergyindustriesassociation, states: The Chinese government is taking very seriously its responsibility to limit carbon dioxide emissions while providing energy for its growing economy, (Energy Daily, 2010, para. 4). In other words, when a government with a population of 1.3 billion and an economyingrowthneedspower,agoldenageforwindturbinemanufacturersistocome. 4.Analysisanddiscussion 4.1.Pestelanalysis In order to analyse and understand key influences and interconnections between backgroundscenariosofthecompetitiveenvironment,thepestelanalysishasbeenapplied (Lynch, 2009). PESTEL is short for Political Economical Social Technological Environmental Legalasexemplifiedinthetablebelow.Themostessentialpointshasforclarificationbeen listed in the PESTEL matrix below. The PESTEL with its Environmental and Legal factors seems more appropriate to apply compared to the original PEST model, considered the nature of the industry of interest. Table 5, on the next page, shows an overview of the topicsincludedinthepestelanalysis. 21

22 Table5,Pestelmatrix USA China Political ARRA,RES,PTC,Obama,Lobbying 11 th and12 th fiveyearplan,feed in tariffs,cdm Economical ARRA,RES,PTC,decreaseoil dependency,supplychain Feed intariffs,cdm,decreaseoil dependency,supplychain Social Liberal pricingmodel Governmentalregulated,population andenergygrowth,fast implementation Technological Environmental Grid&Transmission,cost reduction Onshoreopportunitiesanddeep offshore,co 2 Grid&Transmission,costreduction Onshoreandoffshoreopportunities, CO 2,innerMongolia Legal Offshore,Systemcomplexity Gridcommitments,IPR 4.1.1Political IntheU.S.theelectionofPresidentObamain2009ensuredaprosperousfuturefor renewable energy. With the words spoken by the President during the inaugural address Wewillharnessthesunandthewindsandthesoiltofuelourcarsandrunourfactories (TheWhiteHouse,2009,para.12)itstoodclearthattheU.S.hastakennewenergycourse withashiftfromfossilenergytorenewableenergysources. LaterthesameyearObamaspokeatM.I.T.concerningrenewableenergypoliciesand hisviewthereof.theargumentsforrenewableenergyandthevisionofatransitionofbeing a fossil importing country to becoming a clean energy exporting country were numerous. Firstly,millionsofnewjobswillariseandfutureprospectswouldleadtoanestimatedwind energy market of $2 trillion over the next two decades. Second, an investment in clean energywillpreventtheworstconsequencesofclimatechangeandcreateagreenerworld. Finally,Obamaaddressestheissueofnationalsecurity,sincethePentagonhasdeclaredthe U.S.dependencyonfossilfuelathreat(TheNewYorkTimes,2009). The continuous required growth and implementation of Obama s vision: Replacing fossilfuelswithrenewableenergysourcesishighlydependentupongovernmentalsupport and investment. In the wake of the financial and economic crisis and the prospects for a 22

23 decline in the renewable energy industry, hereby including the wind industry, the governmentpassedtheamericanrecoveryandreinvestmentact(arra)(btm,2009).the $787 billion stimulus package was the largest single boost in scientific research in history, and the profits thereof are numerous according to President Obama. Not only should the stimulus package stabilize the American economy and help to end the recession, but furthermorethearrashouldsecurethefutureoftherenewableenergysectorintheu.s. by laying a strong foundation, on which the U.S. could have a strong stance in the competitionfornewenergysources(thenewyorktimes,2009).obamastatesfollowing FromChinatoIndia,FromJapantoGermany,nationseverywhereareracingto developnewwaystoproducinganduseenergy.thenationthatwinsthiscompetitionwillbe thenationthatleadstheglobaleconomy.iamconvincedofthat.andiwantamericatobe thatnation.it sthatsimple. (TheNewYorkTimes,2009,para.12) PrecedingtheARRA,tworemarkablestimulipolicieshaveensuredgrowthinthewind turbineindustry.onanationalleveltheproductiontaxcredit(ptc)providedthenecessary taxbenefitsforcompaniestocontinueexpansionandinvestment.meanwhileanincreasing number of states introduced a Renewable Energy Standard (RES) (GWEC, 2010). The economical consequences of these policies are hard not to overstate, and the effects thereofwillbediscussedintheeconomicalpartofthisanalysis. Besides the political agenda, lobbying in the U.S. also determines to a great extend howtheenergyportfolioisbeingformedandwhatitcontains.conventionalenergysources and technology have strong market power, and as a result American oil, gas and coal companies can consequently influence governmental regulation (Sovacool, 2008). On averagetheoilandgascompaniesspend$31millioneveryyearonlobbying,whileduring thepresidentialcampaignnumbersraiseto$255million.butthelobbyingisnotlimitedto thenationalpoliticallevel.from2003to2006fossilfuelcompaniesspent$58milliononly on state level campaigns, compared to $500,000 spent by the renewable energy lobbyists (MooreascitedinSovacool,2008). China sgrowthinthewindindustrysectorstartedin2006,whichwasfollowedbya consecutive annual increase of approximately 100% in installed MW. Numerous different 23

24 policies were introduced in order to realize this impressive onshore growth. Some are national,whilstothersareinternationalenergypoliciesunderwhichchinacanharvestthe benefits. Though governmental policies are introduced, China has some special characterristics,whichsetsitapartfromothernationsandtheu.s.(liu&kokko,2010).mostsignifycantistheroleofthegovernment,whichplaysamoredominantrolethanelsewhere.the state controls the development and direction of the wind industry through regulations, incentives and various laws relating construction, purchase, planning, transmission and other activities related to the business. Meanwhile state owned enterprises(soes) are to be found in every single stage of the industry s supply chain. From raw materials till enduser(liu&kokko,2010). ThefirstRenewableEnergyLawwasputintoeffectin2006asapartofthe11thFiveyearplan( ).Thelawaimedatdevelopingrenewableenergybyestablishingthe neededinfrastructureandcapacitytocreateasustainablemarketandindustryatanational level (Lema & Ruby, 2007). Clear onshore targets were set alongside with a mandatory proportionoftheturbine stotalcoststructure,whichshoulddomesticproduced.the70% costcontentrequirementwouldthusfacilitateandfurtherdevelopnationalwindindustry and lower the overall cost of wind farm construction through economics of scale and an efficientlearningcurve(han,mol,lu&zhang,2009). Previous the structure of the market for large wind power projects, bigger than 50 MW,wasbasedontwodifferentbusinessmodelswithdifferentpricesettings(Liu&Kokko, 2010).Onewastheconcessionsystem,controlledbytheNationalDevelopmentandReform Commission(NDRC).InthissystemtheNDRCannounceditsinvestmentplansandinvestors wereinvitedtoplaceabidonthecontact.thebidhadtoincludethelowestpriceatwhich the operator could supply electricity to the power grid. In the second model the pricing decision was based on a benchmark after local unit cost per kw generated though coalpowered generators. In cases where electricity generated from wind was higher than this benchmark, parts of the costs were covered by earnings from an additional renewable energytariff,whichwasimposedonallsalesofelectricity(liu&kokko,2010). The reason for this two way pricing model was found in the shortcomings and problemsthatarosefromtheconcessionmodel.oneproblemwiththeconcessionsystem wasthatitfavouredcompaniesthatsupplied oroffered electricitytoextremelowprices. That motivated companies to place unrealistic low bids, which eventually would put a 24

25 companyinsituationswhereitwouldbeunlikelytorecovercosts.itwasparticularthesoes which were encouraged by this, since a positive bottom line not always was in the best interest when compared to job creation and local development(liu& Kokko, 2010). As a result projects were often delayed and the possibility of covering the costs diminished, whilstforeigninvestorsandoperators,withhighertechnologicalknowledgeandproducts, oftendecidedtostayawayfromtheconcessionmodel(liu&kokko,2010). In 2009 the feed in tariffs were introduced and thereby it replaced the two old economicalprocesses.thefeed intariffsisapolicymechanismdesignedtoencouragethe adoption of renewable energy sources to help the acceleration towards grid parity. However,itdoesnotincludenewoffshoredevelopments(GWEC,2010). Forprojectslessthan50MWalocalgovernmentalcounterparttotheNDRCcontrols the projects. In Inner Mongolia, the most attractive region for wind power, the Inner MongoliaDevelopmentandReformCommission(IMDRC)controlsprojectlessthan50MW. The separation ofprojects by capacity ensures a very efficient and short decision process which gives a boost to the already rapid increase of installed capacity in Inner Mongolia (Hanetal.,2009). When a project is completed, the two SOEs power grid companies, the State Power Grid Corporation and the Southern Power Grid Corporation, are obliged to purchase all electricitygeneratedfromwindpoweratthepricequotedintheoffer(hanetal.,2009;liu &Kokko,2010). With the intense growth prospects for China and especially the Inner Mongolian region, funds and capital were crucial for ensuring further development. In 2008 the averageconstructionpricewasabout10,000yuan/kw,comparedtothedevelopmentgoals ofinstalledcapacityininnermongoliaintheperiod ,thiswouldresultinatotal of billion Yuan that had to be funded and invested (Han et al., 2009). Whilst the ChineseGovernmentandinternationalcooperationprojectsprovidedsomeofthefunding, therapiddevelopmentcalledforfurthercapital.onemechanismthathelpedovercomethis issue was the Clean Development Mechanism(CDM), which provided the needed channel forforeignfunding.thecdmisanarrangementintroducedunderthekyotoprotocol,and basicallyallowsindustrializedcountriestoinvestinemissionreductionprojectsincheaper locations such as developing nations. The investor of a CDM project then claims/gains Certified Emission Reductions (CERs), which can be traded between other industrialized 25

26 countries and thus recover its investment, while having lowered global emissions (Yang, Nguyen,DeT Sercleas&Buchner,2009).Inordertoensurecontrolandregulatethewind energy market, CDM investments in China can only occur in companies, which are 51%, owned by Chinese. The CDM benefits are based on governmental barriers in the host country and transaction costs between counties. The problem arising in China in relation withthe51%requirementisthatcdmbenefitsfortheforeigninvestordecreases,andasa consequencemakestheinvestmentandtheexpectedcashflowlessattractive(yangetal., 2009). Thepoliticalsupport,policiesandincentivesbothgivenintheUSandinChinaareof utterlyimportancetoensurefurthergrowthofthewindindustry.fortunately,boththeu.s. andthechinesegovernmentseemmotivatedandwillingtocontinuethesupport.thecdm mechanismintroducedonaglobalscalehashelpedtofinancepartofthegrowthandwill stillbeanimportanttoolforfinancing.thoughlobbyingfromtheoil,coalandgasindustry currently have the capital for bigger political influence in the U.S., the growth within renewableenergy,increasedfocusonclimatechangeandco 2 reductionwilldecreasethe oil,coalandgascompaniespoliticalinfluence Economical The financial and economical crisis has forced almost every company to downgrade theirexpectationsforexpandingandprovidingmoremwtothemarket. Producing wind energy is one of the most important factors of accommodating the risk of fuel price volatility. The economical situation on energy has become very unstable sinceemergingcountrieshaveanincreasedconsumptionofespeciallyoil,whichhasleadto a dependency on importing fuel from politically unbalanced areas at changeable prices (Krohnetal.,2009).Toputthingsintoperspective,thefollowingdatahavebeenprovided by the European Wind Energy Association (Krohn et al., 2009), which estimates the CO 2 savings and risk minimization by building wind turbine. A technical lifetime of an onshore turbineisaround20years,andforoffshoreitis25years.analysisshowsthatwindenergy avoids an average of 690g CO 2 /kwh produced, and that the average price of a CO 2 allowanceis 25/tCO 2,whichmeansthat 42millionworthoffuelisavoidedforeachTWh ofwindpowerproduced.calculatingwiththesenumbers,thecostofonetwhgenerated through wind power, would match a price level of $90 per barrel of oil. With projections 26

27 from IEA from 2007 (as cited in Krohn et al, 2009), the oil price in 2010 would be $100/barreland$122/barrelin2030.Asaconsequenceaccordingtothiscalculation,wind power will be competitive as long the $/barrel is higher than $90. Furthermore, many externalfactorssuchasthefinancialcrisis,themiddle easternandafricanturmoilandthe riseinconsumptionofoil,hasmadethepriceveryvolatileandunpredictablewhichhaslead tocautiousbuyers.thoughthisscenarioisbasedoneuropeanmeasurements,itdoesnot change the reality of the global development. The U.S. is an oil importing country, which means that a rising oil price will be devastating for the American economy. It is therefore fairlysafetoclaimthattheinvestmentinrenewableenergy,intime,easethepressureon theamericaneconomy. Aspecialfeatureaboutwindenergyisthatincontrarytootherindustries,itdoesnot set up production facilities in high industrialized areas or in areas with high commercial value(gwececonomics,n.d.).theonlyconcerniswherethebestwindopportunitiesare, sincethisisthemaindominatorinthedecisionofwheretoplaceawindmill.thishasalso somethingtodowiththefactthatwindmillsaredifficulttosetupduetofactorssuchas; wind potential, noise and space requirements. A positive outcome is that it has helped strengthening the countryside regional economies, which is also a key factor in the economic considerations in wind energy. Deserted areas withbeneficial possibilities for winddevelopmentareoftenareaswithlittleorloweconomicalactivity,whichiswhythe wind power industry is invigorating rural regional economies with job opportunities, and functioningasacounteractingeffectoftheurbanization(gwececonomics,n.d.). According to the Global Wind Energy Council, in 2008 there were well over 400,000 employedinthewindenergysector,andtheprospectforthefutureis,thatin2020there will be around 2,200,000 employed, which also is an indication of the opportunities and especiallythesignificanceofthisindustry(gwececonomics,n.d.).thisincreaseinjobswill facilitate governmental support and incentives to wind power in order to create new and vitaljobs. As for the American economy, the development of wind energy is a crucial factor, sincetheunitedstatesisaheavyoilimportingcountry.theunitedstatessendsoutmore than half a trillion dollars every year to pay their oil bill, and as for the poor countries in SouthAmerica,AfricaandAsia,therecentoilpricehikeshaveruinedtheeconomieseven more (GWEC Economics, n.d.). As Barack Obama has pointed out in his speeches, the 27

28 investmentinwindenergywillnotonlyreducedependencyonsupplyofimportedfuels,it has the potential to displace the imports of fuel. Most significantly, the investment will improvethenationalbalanceofpayments,notonlyfortheunitedstates,butalsoforevery countrythatdecidestoinvestinwindenergyasafutureenergysource(gwececonomics, n.d.). The link between this high future prospect and the economy is that, when the economy is uncertain and when the unemployment rate is high, any industry that can contribute to an improvement of these factors will get a high political attention (GWEC Economics,n.d.).EspeciallyontheAmericanmarket,thejobopportunitiesandjobcreation hasbeenanimportantfactorfortheeconomy.theinvestmentinwindenergycanbeseen asapositivecircle,sincethebenefitswillnotonlybenumerous,butalsonecessary.wind energyprovidesappreciatedjobopportunitiesandeconomicalflowwhichbothareamong themostimportantfactorsinacountry sdevelopment. 2009wasthehardestyearfinanciallyintheU.S.windenergymarket,andinthewake ofthefinancialandeconomiccrisis,theu.s.marketforrenewableenergyhasalsotakena beat,butthegovernmentestablishedarecoveryandreinvestmentactfor2009tostabilize theamericaneconomy,andtohelptherenewableenergysectorbackontrack(btm,2009). ThepassingoftheAmericanRecoveryandReinvestmentAct,asmentioned,providedthat theproductiontaxcredit(ptc)wouldbeextendedwithanadditionaltwoyears,sothatit would run till the end of Extending the PTC is an incentive and help for the energy companies to keep producing renewable energy. The PTC originally enacted in the Energy PolicyActof1992,andithasthenbeenextendedseveraltimessincethen.Thethreetimes where the PTC was not in function, the annual installed wind power capacity dropped dramatically table6onthenextpage. 28

29 Table6,InstalledcapacityandtheeffectofthePTC Source:AWEAascitedinUnionofConcernedScientists,2009) As it can be seen from the table 6, PTC has been an important tool for the developmentinrenewableenergy.aslongastheptcisextended,themarketcancontinue developing, and the big players on the U.S. market will be fairly safe. The consequences whentheptcwasnotrenewedareclearlydepictedonthegraph.theexpirationoftheptc in 99, 01 and 03, diminished the incentives for investing in renewable energy in the followingyears 00, 02and 04,respectively.Thereisonemajorhurdleinthisprospectfor thefuturethough.sincemanyprojectscantakeyearstocomplete,andduetotherelatively short extension periods, companies that depends on the PTC will face the risk of not receivingeconomicallysupportoncetheprojectiscompleted,iftheptcisnotextended. In2009thegovernmentwouldoffer2,1centperkilowatt hourproducedwhichwould beahelpinghandtothelargerwindcompanies,sincetheywouldbeabletobenefitfrom the PTC with the big amounts of kwh produced. From another point of view the grants instead of tax credits was designed to help the smaller companies who were unable to benefitfromtheptc,sincetheydidnothavetheincometaxtopay,andthereforethetax creditwouldnotbevaluabletothem(ucs,2009) 29

30 The American Recovery and Reinvestment Act (ARRA) contained more than PTC extension,sinceitalsoshoweda6billionusdrenewableenergyloanguaranteeprogramto help rebuilding the energy sector from the economically downturn during (GWEC, 2010). The long term goal is to enforce the national renewable energy standard (RES)toallstates,whichsetsarequirementthatacertainpercentageofpowerineachstate isgeneratedfromrenewablesources.currently28statesoperatewithres(gwec,2010). The policies combined ensured supply and demand. The tax credit ensured that turbine manufacturers could deliver competitive prices in terms of $/kwh compared to traditionalenergysourcesi.e.asupplyside,whilsttheresprovidedacustomerbaseandas a result created a demand. Collectively, the two stimuli policies have increased the attractiveness of the U.S. market. These policies contributed to an increase from 2.5GW installed in 2000, reaching a world leading capacity at ultimo 2009 with 35GW installed (GWECUS,n.d.). TherapiddevelopmentontheChinesemarketforwindenergyismainlyduetosome massive economical investments. Like in the USA, the Chinese government made some economical changes in 2009 in order to promote the development and use of renewable energy. The most crucial task to ensure the wind power development has been to ensure funding. Earlier China ran a dual track system for wind projects, with a project by project government approval process on one hand, and a concession tendering process(discount offers)ontheother.asmentionedearlierthenowprevailingsystemisthefeed intariffs. Chinaalsointroducedanothereconomicalmechanisminordertoaccommodatethe needoffinancialresourcesfordevelopingthewindpower.in2002thefirstcdmwassigned between the Netherlands and China. This specific mechanism was designed to attract foreign funding for domestic Chinese wind projects. The funding country could buy CO 2 reduction credits (CERs), by paying a specific amount of money per ton of CO 2 reduction thatthewindfarmwouldsave(hanetal,2009). Though there are different tariff categories, depending on the region s wind resources, the new feed in tariff is considerably higher than most of the old ones in the concession system. The advantage with the new system is that it attracts more investors since the primary focus is more long termed, and the tariff will apply for the whole operationalperiodofawindfarm(gwec,2010).inrelationtothis,chinaisutilizingtheir economyofscaleintwoways.thefirstwayisbydevelopinglarge scaleprojects(economy 30

31 of scale) and the other way is by enhancing the local manufacturing of wind turbines and otherequipment(gwec,2010). The massive economical support, both coming from governmental initiatives and internationalfundingarecrucialforthefurtherdevelopmentinwindenergy.thoughwind energy has been proclaimed to be one of the future solutions for solving the growing demandforelectricity,thewindenergypricesarestillfacingtoughcompetitioncompared toconventionalenergyresources. Especially the Chinese market is having problems compensating for the economical differencesinenergyprices.thetotalcostsofawindpowerprojectconsistsofconstruction costs, maintenance costs, salary costs, taxes and loan interests, but the fuel (wind) is of course free. Still, due to the poor infrastructure and the high construction costs, the economicalprospectislong term,sincemanyofthecomponentsandturbinesareimported which alsoputs pressure on the price of wind energy(han et al. 2009). When comparing importedturbinesandcomponentswithdomesticones,therecanbeadifferenceonupto 30%. The implication of having such high costs and using imported parts is that the electricityfromwindfarmsislesscompetitivecomparedtofossil fuelledenergy.withsuch a low profit margin for the wind farms, the political initiatives mentioned in the Political section of the PESTEL analysis, is focused on improving the wind power projects and thus making it more comparable to the existing energy sources. As table7 shows (Krohn et al., 2009), the cost allocation is being heavily dominated by the turbine costs, which amounts to more than ¾ of the total manufacturingcosts.thoughthese estimations are calculated for the Table7,Coststructureforawindturbine Investment Shareoftotalcost% ( 1,000/MW) Turbine(exworks) Gridconnection Foundation Landrent Electricinstallation Consultancy Financialcosts Roadconstruction Controlsystems Total 1, Source:(Krohnetal.,2009) 31

32 European market, a projection of the same cost structure to Chinese and foreign manufacturerswillyieldasubstantialextraexpenseinshapeofimportedparts Social How does the social factor influence Vestas performance and opportunities in the U.S.andChina? Theanswerregardinghowchangesinsocialtrendscanimpactandinfluence the demand for precisely Vestas products, is rather difficult to address, since the average consumer of electricity in general would not be the same individual that initially buysthewindturbine.theend userofthewindturbineindustryisingeneralnottheutility companies,buthouseholdsandindustrieswhichrequireelectricity.inthatsense,theonly directtangiblemeasurablesocialeffectisconsumptionofelectricity. AspreviousmentionedChinaovertooktheU.S.asthebiggestconsumerofenergyin The increase in energy consumption does not seem to halt in a near future. With a prospect for continuous growth in population, further economic development based on manufacturing and a growing GDP allowing bigger consumption, China s demand for electricity is likely to triple between 2008 and 2035 (IEA, 2010b). Currently, consumption and energy needs are more fundamental compared to developed nations. However it is especially the flourishing middle class of China which will contribute to the next state of energyconsumption(ma,2010). A new product, which will be available for the rising middle class, is the car. The substantial increase in number of the middle class population entailed that China in 2009 overtook the U.S. as the largest market for cars (Ma, 2010). On a global scale, oil still accountsforthebiggestfossilenergytypewitha28percentsharein2010.comparedwith 2008, this is a decrease of 5%, which partly is due to higher prices explained by higher demandfrome.g.indiaandchina,andtheeffectontheoilandfinancialcrisis(iea,2010b). Since cars are one of the primary sources for oil consumption, China has begun intensive investmentinelectricvehiclesandsupportingtheinfrastructureinordertominimizeemissions of CO 2. Forecasts estimates 500,000 electric cars by 2015, and a total of 220,000 installedrechargingpoles(stategridcorporationofchina[sscg],2011).iftheelectriccar becomes the new Volkswagen of China, dependency on oil will decrease and eventually ease prices, which may put oil in a competitive spot for longer time. Nonetheless, the demandforelectricitywillrise. 32

33 UnlikeChina,theresidentialenergyconsumptionpercapitaintheU.S.isforecastedto declinesomewhere between 10 39% till 2035 (U.S. Energy Information Administration [EIA],2010a) Whereas China during the last decade has experienced a boost in energy consumption, the U.S. has been more stable. However, the energy demand will probably continue to grow and its prime drivers will be population growth which will lead to an increasingdemandforhousing,commercialfloor space, manufacturing and transportation (EIA, 2010a). As a contrast to China, the growthintheu.s.canbecharacterizedasanexpansionofanestablishedcommunity,and thereforethegrowthislessenergyrequiring.chinaisstillinthedevelopmentphase,which calls for a higher energy demand. The boost in the energy consumption in terms of CO 2 emissionscanbeseeninthetable8. Besides increasing energy consumption, a more intangible social variable is the generalattitudetowardswindpower.withinthecorrelatedprocessandcausalityexisting between utility companies, political support, government, grid operators and the turbine manufacturers, the impact of the social attitude basically depends on which form of governmentalisbeingappliedinthegivencountry.thequeriesarewhethertheattitudeof the consumer/citizen can be imposed on the government or not? Whether the consumer has an influence on which energy source contributes the electricity supplied in the power plug? Table8,CO 2 EmissionfortheU.S.andChina Despite social trends and fads among the publication in relation to clean energy, the decisions on which energy source to utilizearemadeentirelyby the government. The Source:(Zhou,Levine&Price,2010). government controls and interveneswiththesupplyofenergythoughthesoes,policiesandincentives,andtosome extend also controls the demand, since energy efficient policies during the recent years havebeenintroduced(zhou et al., 2010).AnexampleistherequirementfromtheChinese government, where the Chinese utility companies have to purchase all wind energy 33

34 domestically produced. This action basically excluded the consumers from the decision makingprocesswhetherornottobuygreenenergyfromrenewableenergysources.inthis examplethestatesecuredademand.thegovernmentinbeijingisinahierarchicalposition, wherethedecisiononwhichenergysupplytouseisbasedonwhattheconsumersandlocal governmentsneedinsteadofwhattheywant,whichinmanycasesmaybeindirectconflict. Shilei and Yong (2009) analyzed the difficulties and the macro environment for implementingenergyefficiencyretrofitforexistingresidentialbuildings(abbr.:eerferb)in thenorthernheatingregionofchina.theissuewasprimarilythatlocalgovernmentsdidnot recognizetheimportanceandnecessityofanenergyefficientinstallation.thiswasdueto threefactors: a)limitedawarenessofclimatechangeandglobalenergycrisis,andasaresultthe localgovernmentwouldratherapplythecapitalinotherprojects. b)localgovernmentspursuedshort termachievements,whichwouldbring immediaterecognition,andsincetheeerferbiscomplicated,doesrequirelarge capitalinvestmentsandislong termoriented,itseemedlessattractive. c)despitethatthecentralgovernment(beijing)hasa onevoteveto systemwhich givesthemsovereignty,actualdisincentivesareneededtobeimplementedforlocal officialswhofailtomeetthegoalsforeerferb. Finally,italsoleftBeijingwiththechallengetoassesshowtodistributeavailableresources fortheproject.theprojectwasin2009stillatthedemonstrationphaseduetothelackof funding(shilei&yong,2009). The establishment of wind farms, especially in remote and rural areas, has some highlyvaluedsocialbenefitstoitssurroundingcommunity.firstly,improvedinfrastructure andinconsequencetransportationofpeopleandgoods,facilitateseconomicdevelopment. Secondly,surveysrevealthatthegrowthofrestaurantsandhotelsnearwindfarmstripled after the construction of a wind farm. The final benefit is somewhat interrelated to the growth in hotels and restaurants, namely an increase in tourism (Han et al., 2009). The economicalbenefittosomepartsofthelocalcommunity,doesbuildupsomegoodwillfor thewindturbineindustry.otherpartsofthelocalcommunity,suchaslocalherdsmenwho 34

35 loose grassland, consider the wind farms as an impediment for their business(han et al., 2009). Recent acknowledgements of consequences of sustainable energy sources regarding climatechangeandpollutionhasactedasacatalystforimplementationofenergyefficient policies, and has kick started the Chinese government to focus more on sustainable development(ma,2010).negativeclimatechangeandmoreenvironmentalpollutiondoes notsharetheexactsamecommonalities,thecommontraitisthatbothareabyproductof China s pursue towards economical prosperity. As stated previous in a quote, the Chinese government takes the entire issue on renewable energy very serious. This is expressed in energy laws, introduced from both the 11th and the 12th five year plan concerning efficiencyandrenewableenergy,(shilei&yong.2009;zhouetal.,2010;ma,2010).china s swiftimplementationofpoliciesandrestrictionsonlyunderlinesthis. AspreviousmentionedtheelectionofObamagaverisetoanincreasedgovernmental support and incentives to renewable energy, but a collateral benefit was the gain of a spokesman for renewable energy and climate change. The focus that he brings on renewableenergyisimportant.unlikechina,thedecisionprocessintheu.s.isbasedona democraticsystem,andasaresultthepublicinterestisdirectlyandindirectlyreflectedin the country s policies concerning renewable energy and energy efficiency, such as the previousmentionedarra,resandptc. Whereas China requires the purchase of all wind energy produced and as a result thereof generates demand, the American market is more liberal. The demand is primary driven by governmental interference and the consumer itself. The only mechanism that directly controls the demand for wind energy is the RES, which specifically requires that utilitycompanieshavecertainpercentageofenergytobegeneratedbywindpower.since notallstateshaveimplementedres,itisnotcertainthattheconsumerautomaticallywill receiveashareoftheelectricityproducedfromwindenergy.themarketconditionsinthe U.S.giveconsumerstheoptiontofreelychoosewhichelectriccompanythatshouldprovide the electricity, and as a result 24 power companies offer wind generated electricity(u.s. DepartmentofEnergy,n.d.) In order to summarize; The American increase in energy demand is rather small compared to the increase in demand in China. The demand for wind energy in China is controlledbythegovernmentandcurrentlyitisrequiredthatthesoe sbuyallwindenergy 35

36 produced. In the U.S. the demand for wind energy is created through the consumer and federalpoliciessuchastheresandtheptc Technological The focus of the ongoing analysis is on the overall market prospects and developments;hencethetechnologysectionofpestelwillbetreatedonanoveralllevel. Theexternaltechnologicalfactorsforthedevelopmentofwindpowerareamongthe most crucial, and a well functioning energy infrastructure is the backbone within wind power. The development within these areas, is by many analysts considered to be one of severalsolutionstotheco 2 emissionproblemssincenewtechnologicalsolutionsaredevelopedinagreementwithasustainableenvironment.thetechnologicalfactoriscloselyconnectedtotheeconomicalfactorsince,asthetechnologymatures,thepotentialofapossible cost reduction increases over time, but also enables power systems to enhance larger productions(iea,2009).anotherimportantarea,thatinrecentyearshasattractedfocus,is thedevelopmentofsmall scalemillsthatdoesnotneedanygridtofunction.thisfactwill bediscussedlaterinthissection. ThetechnologicaldevelopmentintheU.S.attractsagreatdealofattention.Several forecastsaboutfuturescenariosandgoalsconcerningthepercentageofrenewableenergy tocovertotalenergyconsumptionhavebeenpresented.inthisindustrythemostcommon benefitsfromr&dhavebeentoimprovethecapitalcoststructureandperformanceofthe products. Using lighter materials, improving the learning curve and reducing risks are all areasthatr&dtriestoimprove(doe,2008). However,anothervariableisconsideredastheactualdenominatorforgeneralimprovement, not only for the distribution of energy, but also for collecting and utilizing the energy;thepowergrid(doe,2008). In order to collect the energy produced in the most efficient way, the grid between theproducers,utilityandusersmustbeoptimaltobenefitmostfromtheenergyproduced and eliminate waste. To accommodate the expensive grid connections, the smaller mills producing100kworlesshavebecomeapopularalternativeasanenergysourceinareas wherethepossibilityforbigwindparksdoesnotexist.thephenomenoniscalledsmallwind or distributedwindenergy,whichisareferencetotheuseofsmallwindturbinestocover local demands or small households. The installation of small windmills without any 36

37 requirement for grid, reduces the pressure on the technological development and energy demand. The small plants are even supported financially, and this reduces the up front capitalcostsfortheconsumer(doe,2008). Threetypesoftransmissionsystemsthatcanbeusedtotransportationofwindpower exist.theseincludeexistinggrid,newlinesandin regiontransmission,butnewalternatives arebeingdeveloped,sincemuchoftheenergycanbelostduringtransport.transmissionof the electrical energy is essential and expensive, not to mention a crucial need for proper transport, so it is very important for new constructions that the grid and connections are operatingwiththebestqualitypossible(doe,2008). It is a crucial factor for the technology to develop the grid simultaneously with the development of large scale projects. Especially China and the U.S. are facing a very costly gridexpansioninordertoaccommodatetherapiddevelopmentthatthesemarketsexperience (BTM, 2009). The American long term plan for securing the growth of sustainable energyisinspiredbytheeuropeansupergridwhichisaconceptualframeworkallowinga wideruse,andbetterdistributionofenergy.theuseofhighvoltagedirectcurrent(hvdc) cablesareoneofthebestwaystodistributeenergy,sincethelossesandcostsarekepttoa minimum (BTM, 2009). Obviously, the purpose of an advanced electricity system is to transmit power from wind rich areas, to areas with a high demand. A big obstacle in the Americanmarket,istointegrateamoreefficientgridsystem,andwithprojectswaitingin line to get the approval, a new planning model has been introduced, which for safety reasons implies, that the involved partners must prove their creditworthiness, in order to enterthegridconnectionqueue.theproblemisthattheenergyoftenhastobetransported on long distances, from where it is produced to where the demand is. When the current linesdonotperformthistask,alotofenergyiswasted,andtheproductionismoreorless goingtowaste,eitherduetopoorgridorlackofcapacity(btm,2009). ThewayofoptimizingtheAmericanrenewableenergystatus,bytakingalookatthe transmissionplansforthedifferentwindscaleprojects,isadifferentwayofputtingprojects in progress. Conductors have many rules to follow before a transmission plan can get the permissiontobeapproved,andmanyoftheprojectsmustwaitina queue.anexampleof anapprovalqueueisillustratedintable9onthenextpage. 37

38 Table9,Queueforgridlineexpansion Queue Transmissionproject Capacity(kV) Targetyearonline Newwindcapacity 1 JuandeFuca McNary JohnDay ,200 3 WallaWalla McNary BPAOpenSeason Varies Varies 4,716 5 MontanaAlbertaTie CapX ,275 7 SouthwestIntertie ,200 8 Populus Terminal ,600 9 TranswestExpress , CO WYIntertie Pawnee SmokyHill Tehachapi , Tallgrass/PrairieWind , SPPbalancedportfolio Northwest Woodward , CREZ ,859 Total 36,200 Source:(WindPowerMonthlyJuly2009ascitedinBTM,2009) AfurtherargumentforimprovingthetransmissionprojectsisthefactthattheAmerican government has invested heavily in renewable energy, and since the U.S. has a big demand for energy, a faster queue would result in more energy, less pressure on the demand,lessspendmoneyonimportedenergy,andabetterchanceofreachingthefuture goalsforrenewableenergy. Table9illustratesthedetailsof16newtransmissionplans,whereoffourarealready under construction. Depending on the upgrade, projects can take several years and cost billionsofdollarstoconduct.asdemonstratedinananalysisbybassett&todd(1993),the rule of Shortest Processing Time (SPT) could give inspiration on how to improve the efficiencyinthewaythatthewindprojectsareapproved.thesptrulehasbeenusedfor many years to optimize the workflow and create greater efficiency, through a series of 38

39 mathematicaltestsandmeasurements.theideainthissituationistolookatwhichtransmission projects that have the longest and shortest processing time, compared to their power potential and costs, and then arrange them in the queue. The idea arose from the factthatbottlenecksituationsoftenarecausedbythegridsystem,whichhavenotgotany excess capacity available for the electricity(btm, 2009). Although a statistical analysis on thequeuehasnotbeenperformed,thesptruleshouldbeseenasatoolthatcouldmake the processing of the queue more efficient with respect to the money invested in each project vs. the amount of new wind capacity. If the cost benefit analysis could work, it wouldprovideamoreefficientwayofexpandingthenewcapacityofenergy. China is facing somewhat the same bottlenecks as the Americans do. In China, the windiest areas are in the North, which means that supply of energy is often far from the areaswithhighpopulationdensityandwithhighdemand.notonlyisacostlygridconnectionnetworkrequired,butthecostandweaknessofthetransmissionisalsotobeoptimizedinordertoimprovethepowertransmissions(btm,2009).thelargestgridenterprisein China;StatePowerGridCorporationofChina,investedin2009;CNY31.3billiontoconstruct powergridlines,andtoppedtheamountin2010byinvestingcny41.8billiontoconstruct 23,200kminterconnectionlines,whichcorrespondstoalinegoingmorethanhalfaround theequator(sgcc,2011). Though both presidents (Hu Jintao and Barack Obama) are/have been running a politicalagendawithsustainableenergy,rankingwithahighpriority,thetwocountriesare, inordertoreachtheirindividualfuturegoals,stillfacedwiththesamebottleneckproblems of having to invest in better and more efficient power transmission networks, in order to accommodatethedemandandthefastdevelopmentinthewindturbineindustry(li&ma, 2009) Havingpointedoutthegridconnectionsasthebottleneckinthisindustry,aninterestingperspectivecouldbetoapplyaSynchroneManufacturingSystem(SMS)intotheprocess(Sivasubramanian,Selladurai,&Gunasekaran,2003).Thefollowingexampleshouldbe consideredasa(thoughsimplified)modelforexplainingtheprocessofhavingabottleneck that results in a reduced output and causes higher expenses in shapes of resources, material,andtime. A study of a company that operates in the medium scale manufacturing industry producingsmallmotorsandpumpshas,throughasimilarandsimplifiedlinearprogramming 39

40 model(lpmodel)withasmallamountofconstraints,shownthemechanicsoftheproduction system that is being optimized (Sivasubramanian et. al., 2003). Using mathematical toolsforsolvingindustrializedproblemsisanacknowledgedwayofoptimizingtheproduction and output. Applying a mathematical tool such as the SMS system, or the LP model could ease the bottleneck situations and possibly create a smoother flow. Although many constraints(e.g.demand,supply,costs,wind,andgovernmentallaws)havetobetakeninto consideration, the objective function in this case would be the improvement of the grid system beingabletotransportlargeamountsofenergyoveralongdistance,fromdeserted areaswithalotofwind,intothecitieswherethedemandishigh.thecontrolandmanagementofasmssystemisallaboutevaluatingtheprogram,activity,scheduleanddesign,and theircontributiontoasuccessfulaccomplishmentofthecommongoal(sivasubramanianet al., 2003). Furthermore, the two ways of measuring the performance are with a financial pointofviewandanoperationalpointofview.thefinancialmeasuresthecashflow,roi and net profit whereas the operational view concerns throughput, inventory and operationalexpenses(chase&aquilanoascitedinsivasubramanianetal.,2003).althoughthe studyhasbeenperformedonamediumscaleindustry,manyofthevariablesaretranslatabletothewindmillindustryindicatingthatacomplexlpmodelcouldbeappliedwithinthis specificindustry. As mentioned earlier, to accommodate the rapid market growth, the Chinese government and SGCC has, as a contribution to recover from the financial and economic crisis,investedheavilyintheconstructionofnewpowergrids.implementingspecialpolicies, which regards including power grids in large wind power projects, e.g. by using HDVC power lines, has helped moving electricity from provincial to regional areas (BTM, 2009). Especially the windy areas in the upper part of China, has proven to be problematic, not only due to poor transmission, but also because of the transportation conditions. Even thoughitbylawhasbeenenactedthatthegridcompaniesareresponsiblefortransmission lines,thereisnorequirementonthequalityoftheline,noraduedateofconstruction.this results in a huge pressure on the grid companies, mostly financially since the price of constructing 100 km of transmission lines, costs around 350 million Yuan ~ 53,4 million dollars(hanetal.,2009). Toconclude,awellfunctioningandstablepowerinfrastructureishighlynecessaryand ofhighimportanceforsecuringgrowthandbenefitsofwindenergy.boththeu.s.andchina 40

41 have invested heavily in order to optimize this. Large investments in power grids and transmissionwillthereforealsogiveaboostinthewindturbineindustry Environmental The environmental factor of wind power assesses two topics. Firstly, the weather conditionsandsurroundingsintheregionsofwindmillswhichdetermineswhetheron and offshoreturbinesarefeasible.secondly,howtheclimatechangesinfluencethewindpower industry.thelatterissueconcerningclimatechangeandtheeffectsthereofwithrespectto thewindturbineindustryhasbeenaddressedintheforegoingpart.thefocusofthissection is to evaluate the potential capacity and options for the type of turbines which could be implementedinthegivenenvironmentalsurroundings. China has one of the most favorable wind capacities in the world. However, it is difficulttoputanexactnumberonthepotentialcapacity,whichismeasuredingw.organizations and the government have conducted several analyses in order to estimate the capacity.inordertocreateoverviewthereofandageneralpictureofthesituation,ametaanalysishasbeenconducted,andtheweightedaveragehasbeencalculatedasanoutput. Table 10 on the next page presents an overview of the different agencies and their estimatesontheonshoreandoffshorecapacities. 41

42 Table10,EstimatesofwindcapacityinChina Agency Onshore Offshore Notes Source cap. cap. NationalMeteorological 253GW 297GW Basedonlow (Lietal., Bureau(NMB, ) (3,226GW) (4,350GW) measurements.10m 2007) aboveground ChinaMeteorological Administration(CMA,2006) UnitedNationsEnvironment Program(UNEP)cooperation withusnationalrenewable EnergyLaboratory(NREL) (2006) ChinaNationalClimate Center(2006) (Hanetal., 2009),(Liu& Kokko,2010) (Hanetal., 2009;Li& Ma,2009) (Li&Ma, 2009) ChineseAcademyof Engineering(CAE) 300GW 1,400GW (Li&Ma, 2009) 253GW 750GW Basedonlow measurements.10m aboveground 1,400GW 600GW Basedonhigh measurements.50m aboveground 2,548GW Basedonlow measurements.10m aboveground. ExcludingtheTibetplateau. Note:Numberswithbracketsistheoreticalcapacity. At first it seems that the difference in capacity of NMB and CMA compared to the evaluation conducted by UNEP in collaboration with NREL, is due to the difference in measuringprocedure.highergrounddistancewillresultinmorepowerfulandstablewind i.e.thepotentialandtherebythewindcapacityislargerwhenmeasuredthisway. Archer andjacobsen(2003)showedthatonaverage,windspeedataheightof80misbetween m/s faster than speed measured by what is referred to as common methods which implies windmeasures10mabovegroundlevel.incontrast,thechinesenationalclimate Center measured a significant higher onshore capability at 10m and additionally did not include the Tibet plateau, which has favorable wind conditions(liu& Kokko, 2010). From table 10 the calculated average onshore capacity is GW (( ,400+2,548 42

43 +300+1,400)/6= GW).Theaverageoffshorepotentialhasbeencalculatedto549GW (( )/3= 549GW). That gives China an estimated wind capacity of GW. Withatotalof874GWofcoalplants,windfarms,nuclearpowerstationsandhydroin2009, the potential wind capacity is nearly twice as high compared to total installed capacity (Cheung, 2011). The Inner Mongolian region has some of the highest wind resources in China.Thetechnicalpotentialcapacitywasin2008estimatedto150GW,ofwhichlessthan 2.5%atgiventimewasexploited(Liu&Kokko,2010). Onewayofestimatingthewindcapacityisbyincludingexternalvariables,suchasthe numberofmillswhichcanbeinstalledinaspecifiedarea,theeconomicconditionsandthe technologicalandtechnicalperformanceoftheturbine(li&ma,2009).giventhetechnologicalvariable,itseemsdifficulttodetermineafixedwindresourcecapacityforacountry, andwithcurrentdevelopmentsandimprovementswithinturbines,thecalculatednumber could be seen as a minimum of achievable capacity in respect to current and past technologicalknow how. Another way of evaluating wind power resources is on a cost basis, where one procedure estimates the capacity based on how much wind energy that is available for a certaincostorless.theu.s.departmentofenergyhasappliedthismethod,anddetermined that approximately 8000GW will be available for $85/MWh or less (DOE, 2008). The calculationdid,however,notincludethetransmissioncosts,whicharehighlyconsiderable. Taking the transmission cost into consideration, approximately 600GW and 400GW, respectively can be exploited at on and offshore locations which can enter existing transmission systems(doe, 2008). This is roughly the equivalent to the estimate given by EIA(2007)(ascitedinDOE,2008),whichassessedU.S.windresourcesto983GW.Inorder to put this into perspective, the total U.S. installed capacity in 2009 was 1,025GW (EIA, 2010c). The installed capacity was higher than China s; the reason thereof is that, as mentioned, China first overtook the U.S. with installed capacity in The highest resources of wind are to be found in Oklahoma, South Dakota, North Dakota, Kansas and Nebraska. However off and onshore resources have been located along the south and southeastern coasts of the U.S.(Archer& Jacobsen, 2003). Due to the water depth in the U.S., offshore turbines are still too expensive to implement, but future technology improvements in R&D for deepwater turbines will probably make this huge capacity availableforexploitation(doe,2008). 43

44 Both the U.S. and China does currently have huge wind capacity, and as technology will improve, even more wind resources will be accessible. In the long run, it is highly unlikely that insufficient wind resources will be the determinant for generating an upper limitforturbinesinstalled.afactorsuchasdiversityofenergyportfolioislikelytointerfere before Legal ThelegalperspectiveintheU.S.andChina,respectively,isinthissectionlookedupon intwodifferentways.thisismainlyduetothedifferenceindemographyandgeographical opportunities/challenges. The American government has, as mentioned, implemented several laws for promoting renewable energy. The recovery act and the subsidy in shape of PTC are just some of the initiatives taken to promote a greener future. Presently, the most difficult processconcernsthediscussionofwheretoplacenewoffshoreprojects.thereasonbehind is, that these decisions cannot be accepted only by governmental force, but must go through federal and state jurisdictions, including several laws, before an actual approval. Furthermore, the federal government does not have a system that enhances energy projects on outer continental shelf lands (sea outside the individual states jurisdiction) (Santora,Hade&Odell,2004).Currently,theyarebeingpermittedonacase by casebasis. Althoughthepotentialforextractingenergyfromoffshoreprojectsislarge,theroadfrom the drawing board to completion might be one of the most complicated ones in terms of involvement from numerous services of endangered species, wildlife, fish and in general the entire marine zoning. Once these negotiations have been sorted out, the matter of publictrustviolations,visualimpactsandshippinglanesarejustsomeofthefactorswhich also have to be considered (Santora et al., 2004). Since a finished regulatory framework does not exist, the government is working on different ideas. Leasing agreements copying the UK framework or simply modify the framework used for offshore oil and gas industry which is already functioning and dealing with the same factors (Santora et al., 2004; Portman,Duff,Köppel,Reisert&Higgins,2009). Thequestionliestowhichofthepossibilitiesthatarethemosteffectiveandbeneficial for the American society. Copying the existing framework from offshore oil and gas constructions is a plausible solution, though the time frame for this operation and the 44

45 further approval for future offshore projects are unknown. On the contrary, copying the frameworkfromoneoftheleadingcountriesinoffshorewindprojects,theuk,willrequire alotofadaptionduetothedifferentoffshoreconditionsandlegislations.aduplicationof thisframeworkwillalsoberiskysincetheadministrationtimeintheukiscausingsomeof theprojectstowaitinalinetogetgranted.thetimeusedforsubmittingconsentapplications,gettingitgranted,gettingconstructionpermissionsandtheactualcompletiontime, amount to several years (Gibson & Howsam, 2010). The American government should therebyevaluatethealternativesonabasisofthecostsandtimeframeinordertocomeup withasolutionthatsuitstheamericansocietyinthebestpossibleway. TheChineselegislationsregardingrenewablewindenergy,ishighlydeterminedbythe government only. The most powerful legislation is the Renewable energy law from 2005, which sat regulations for the grid companies and the power companies. The law was recently revised in April 2010 with the addition that grid companies should guarantee a percentageoftheenergytocomefromrenewableenergy(cheung,2011). To support the development of renewable energy, the Chinese government has chosenadifferentangletopromotetheawarenessoftheenergyconsumption.beingable toproducehugeamountsofrenewableenergyisnotsolelyasolutiontotheplansandgoals setforthecountry.hence,itisnotasustainablesolutiononlytolookforward,disregarding thepresentsituation.toaccommodatethisproblem,thechinesegovernmenthaveinmany years been investing in a project called Energy Efficiency Retrofit for Existing Residential Buildings (EERFERB). This project should help optimize the energy consumption by introducing better heating systems and isolation in the northern parts of China, ensuring lesswasteofenergyandabetterindoorclimateinthecolderareas(shilei&yong,2009). Theprojecthasbeendevelopedthroughseveralyears,andmanyongoingimprovementsin different northern areas throughout the years have been conducted. There was no doubt that retrofitting buildings was a method that could eliminate waste with a substantial amount, which was also supported by retrofit demonstration in 1979 which showed a energy efficient rate of 27,48% according to (Shilei & Yong, 2009). Accomplishing such resultsbecameanincentiveforthechinesegovernmenttokeepimprovingandinvestingin EERFERBto,notonlygetbetterenergyconsumption,butalsoheightenthelivingstandard forpeopleinthenorthernregions(zhao,xu,li&gao,2006). 45

46 Anotherimportantissueistherelationshipbetweenintellectualpropertyrights(IPR) protection and FDI in China which have been examined in the study of Awokuse and Yin (2010). China was in 1992 forced to strengthen their patent laws by the U.S. and again in 2001whenjoiningtheWTO.Sincethenthepatentgrowthratehasincreasedsteadily.The findingsofawokuseandyin(2010)werethatimprovementsonipr(includingpatentlaws) tendtoprompthorizontalfdiinacountrywiththesamecharacteristicsaschina(alarge marketandhighthreatofimitations).afurtherbenefitforchinawouldbeastimulationof technologytransfer ConclusionPESTEL Through the analysis we can conclude the following: The political aspect in the windmill industry have on both markets a massive influence. Although China and the U.S. are operating in two different ways, the governmental support is crucial for the existence and development of renewable energy. The economical impact on the industry is closely connected to the political aspect, since subsidies and support are the foundation for investmentanddevelopmentofwindenergy.furthermore,bothcountrieshavecleargoals for the future energy status, but as it is for now, the capital involvement is necessary to reachthosegoals.wefoundthatthesocialfactorsincludepopulationandtheconsumption of energy. This reflects how the view on demand and consumption are, both on a small almostindividuallevel,butalsoonthegovernmentallevel. Thetechnologicalimpactonthisindustryhastoouropinionamajorimpactonfurther development.themainconcernisnotonlyonmakinglargerandmoreproductivemills,but better grid systems and cost reductions in the projects seems to be the most important within technology. We found the environmental impacts to be centered on the CO 2 emissions and the feasible conditions that wind energy requires. This came as no big surprise, since one of the biggest benefits concerning renewable energy is the minimal, almostnonexistentemissionofgreenhousegasses. With the legal factors we could conclude that the American government had a very complex system when projects should be permitted, whereas the Chinese government focusedoncertaingridcommitmentsinnewenergyprojects. 46

47 4.2.PortersFive In order to analyse the competitive environment and strategic outlook for Vestas, Porters (2008) model for the five competitive forces has been applied. The aim of the analysisistoassesshowvestasinthefutureshouldcopeandoperateinrelationtotheir competitors.thefivecompetitiveforcesofportersmodelare: 1. Threatofentry 2. Thepowerofsuppliers 3. Thepowerofbuyers 4. Thethreatofsubstitutes 5. Rivalryamongexistingcompetitors 4.2.1Threatofentry Entry barriers are unique factors that characterize every industry in different ways. Barriers in the wind turbine industry are highly affected by the expensive start up costs related to setting up production facilities, and investing in R&D. Typical costs in a wind turbineinstallationincludes;rawmaterials,foundation,roadconstruction,cabling,transformers, transport, craning, assembly, tests, legal matters, insurance, maintenance, repair, spare parts and administration (Krohn et al., 2009). Another important factor for new entrantsisthesteeplearningcurve,andtheprocessingtime.aprojecthastogothrough several instances, and since the completion time of projects can take several years, it requiresasubstantialamountofstart upcapitalbeforetherewillbeanyrevenue(krohnet al.,2009). Duetothehighstart upcosts,manycompaniesmakeuseofmergers,acquisitionsor joint ventures to enter the market without having to build up years of technological expertise and know how. It is a common trend in any given industry; especially joint ventures have been a popular method for achieving better cost allocation, but also for ensuringawiderrangeofexpertiseindifferenttechnologicalareas(buckley,2007). In China new entrants are faced with challenges such as; inexperience and lack of technological skills. On this basis the most common entry strategy has been to acquire 47

48 technology through licensing from foreign companies that are not present in China(Liu& Kokko,2010). One of the natural barriers to entry is the market demand. A large demand means potential profit for established companies, but it also attracts new entrants. On the opposite, low demand scares away new businesses, since profitability is more or less proportionaltomarketdemand.todrawaconclusionfromthis,china spopulationgrowth andtherebydemandhascausedthewindindustrytoexplodeintermsofnewplayerson themarket.attheendof2009,around70companieswereactiveontheasianmarket,and 60ofthemwerelocatedinChina(BTM,2009). Having entered the industry for turbine manufacturing, the capital intensive investmentsinproductionfacilitiescreateanaturallargebarrierforexitingthemarket.this also applies to smaller interrelated businesses, since collaboration between companies ofteninvolvessomesortofbindingcontracts(buckley,2007). Although the entry barriers are quite high, licensing the technology from foreign companiescanlowerthebarriers,andthecostgeneratedbyr&dcanbeavoided.especially China experiences a massive boost in new companies due to the increased demand for energy.asdemandwillbesuppliedalongsidethepossibilityofdominancebyfewerbigger companies,barrierstoentrywillberaised.sincebigcompaniessuchasge,vestas,siemens andgamesaprimarilydominatetheu.s.market,itismoredifficulttoentertheu.s.market than the Asian market, which is characterized by having a wide range of possible energy suppliers Thepowerofsuppliers The number of suppliers and their relationships with the manufacturers are interestingtolookat,sincebothpartiesaretryingtobepowerfulandcapturesomeoftheprofitin the industry. The bargaining power of the manufacturers is determined by how many suppliers they have, and by the amount of suppliers on the market. In this section the supplychainandtheimplicationsthereofwillbeanalysedwithrespecttothecompetition andmarketevolution. Whenanalyzingthesupplierpower,therearesomemarketcharacteristicswhichhave tobetakenintoconsiderationinordertoevaluatetheirstrengths.suppliersarepowerfulif there are only a few concentrated suppliers on the market. Alongside with this, powerful 48

49 manufacturersenhancetheimportanceofseveralsuppliers,tominimizetheriskandavoid high switching costs. Additionally, manufacturers also prefer to make long term relationshipswiththesamesupplierinordertosavecosts.opposite,standardizedproductstendto decreasethesupplierspower. In the wind turbine industry it is crucial to have a security in supply of components, since both profits and the reputation of the company are at stake. The best established companies are those who can control their suppliers either by buying them (vertical integration)orbymakinglongtermcommitments(merrilllynch,2007).long termcommitments are about mutual trust, and the loyalty between supplier and buyer regarding that eachpartwillcomplywiththecontractisimportant.long termcommitmentsalsoinclude thatthesupplierisabletodeliverwantedcomponentsandexecuteprojectsintimeforthe sakeofbothcompanies. As in any other industry, the fear of bottlenecks is also present in the wind power industry.thesituationwheresupplierscannotkeepupwithdemand,andthereforeslows down a production or project, is one of the worst nightmares for the manufacturing companies. To accommodate this risk, many big wind energy companies have bought out suppliers of critical components, including generators, blades, towers and gearboxes (Clarke,2009). Duringrecentyears,verticalintegrationhasbeenatrendthatmanycompanieshave used.havingsuppliersinhouse,doesnotonlyensurecostreduction,betterqualitycontrol andaccuracyondelivery,italsomakessurethatothercompaniesdonotcopythespecial technology and design (Clarke, 2009). Furthermore, many of the wind turbine manufacturershavechosenmultiplesuppliersforaspecificcomponent.thisismainlyduetotherisk factor.ifthesupplierissuddenlynotabletoprovidethecriticalcomponentsforaproject anothersuppliermightbeabletodeliverthewantedcomponent.thistypeofbusinessalso functions as a competitive advantage to integrate backwards on the supply chain, since costsandrisksareeasiertocontrolinaninhouseproduction Astable11onthenextpageshows,thetrendofhavingcriticalcomponentsinhouse isverytypical.forexample,investasrotorblades,generators,towersandcontrollersare delive red by suppliers owned by Vestas. The content of the table is from 2007, and it reveals that there are only a few suppliers to the different specific components; this has though changed in recent years, as the Chinese market has grown both in manufacturers 49

50 andsuppliers.despitethefactthatmanyneweasternsuppliershaveenteredthemarket, thebigcompaniesstillholdsabitofscepticismstowardsnewsuppliersduetotheunknown factorsofquality,loyaltyandconfidentiality(clarke,2009).itisthoughplausiblethatwithin a reasonable amount of time with increased numbers of suppliers, the competition will inducelessbargainingpowerfromthesupplierside,whichagaincouldlowerthepriceson components. Since price, particularly in this industry is a sensitive factor, the lower prices could give rise to more projects regarding renewable energy. Presently, the economical backbonehasbeenthesubsidiesandgovernmentalsupport,butwithcompetitioninprice of components, the market could get even more potential for future growth (Douglas WestwoodLimited&BVGAssociates,2006). Table11,Overviewofsuppliers Vertical Rotor Gearboxes Generators Towers Controllers Integration blades Vestas Vestas,LM Bosch,Rexroth, Hansen,Winergy (Siemens), Moventas Weier(Vestas), Elin,ABB, LeroySomer Vestas, NEG,DMI Costas (Vestas),NEG Dancontrol GEEnergy LM,Tecsis Winergy(Siemens), Loher,GE DMI, GE Bosch,Rexroth, Omnical, Eickhoff,GE SIAG Gamesa Gamesa, Echesa(Gamesa), Indar(Gamesa), Gamesa Ingelectric LM Winergy(Siemens), Cantarey (Gamesa) Hansen(Suzlon) Enercon Enercon Directdrive Enercon KGW,SAM Enercon Siemens Wind Siemens, LM Winergy(Siemens) Siemens,ABB Roug,SAM Siemens,KK electronic Suzlon Suzlon Hansen,Winergy (Siemens) Suzlon,Siemans Suzlon Suzlon,Mita Teknik Clipper WindPower Tecsis Clipper Potencia Emerson, Anston Clipper Nordex Nordex, Winergy(Siemens), Loher,VEM Nordex, Nordex,Mita LM Eickhoff,Maag Omnical Teknik Glasfiber Source:(MerrillLynch,2007) 50

51 In relation to this, the turbine manufacturers operate with very different strategies. Although the content of table 11 dates to 2007, it still confirms the different strategies in themarketsincethestrategychosenbythespanishgamesa,hasbeentohaveallcomponentsinhouse,whereastheamericangehasgoneintheotherdirection,outsourcingmany ofthecomponents(europeanwindenergyassociation,2007).itishardtoclaimwhichone ofthestrategiesthatisthebest,sincetheybothhaveprosandcons,inducingthefunctionalityofthesupplychaintobethedeterminingfactor. It is interesting to see how the different wind turbine companies have chosen differentmarketstrategies,andtoassessthefactorsthataffectthisdecision.inmanyways, theindustryresemblesthecarindustry,inthelightofthemarketdynamicsandconsistently changing demands. Globalization, improved competition in price and technology, environmental responsibilities and safety requirements are just some of the prospects that affect thegrowthanddevelopmentopportunitiesinbothindustries. AresearchpaperconductedbyPhongpetraandJohri(2011),includesPortersbusiness strategies,andexaminesdifferentbusinessstrategiesamongautomobilemanufacturersin Thailand. It is interesting to assess the similarities and variations in choosing the most suitable strategy in the two different industries. The study conducted showed that cost strategies are preferred above differentiation strategies, and that the strategy is highly dependent on the target market. Furthermore, choosing the right strategy will lead to a positive effect in the organizational performance, which is measured by market value, volume and share, thus revealing the status of the companies. Compared to the wind turbine industry, many of the same factors affect the business strategy. Similarly, the car industry is integrating parts of their supply chain with the same purpose as for wind turbines,cuttingcostsandensuringperformance.thecarindustryismucholder,whichalso implies that is has experienced a much longer development, placing the industry in a situation where price is the main competition. However, as described above, the trend withinthewindmillindustrycouldgointhesamedirection,duetotheincreasedcompetitioninmanufacturersandsuppliers.currently,suppliershavealargebargainingpower,but ifthedevelopmentcontinues,thismightdecreaseinthefuture.additionally,thecustomers arenotasdiversifiedasonthecarmarket,resultinginlessspecifications.asaconsequence thecompetitivefactorinthewindindustrymightverywellbetoensurethelowestpricesof energythroughalowcostofproduction. 51

52 Having analysed the supplier power, this leaves Vestas characterized as a company that has focused on integrating vertically. Having established different production departments all over the world including: Vestas Nacelles, Towers, Blades, Technology & R&DshowsthatVestas strategyistolowercostsandensureahighproductquality(vestas profile,n.d.). Table12,suppliersgrowth Components/materials Supplier 06 Supplier 08 Supplier 09 Increase(%)from Rotorblades Gearboxes Electricgenerators Bearings Powerconverters n.a (increasefrom 08) Powertransformers n.a (increasefrom 08) Castings Forgings Source:(BTM,2009) Table12aboveshowstheamountofsuppliersforeachimportantcomponentinthe turbine industry. The positive trend in the table clearly shows an explosive increase in suppliers,especiallyintheperiodfrom Thetableconfirmsthatsincethesupplyof gearboxeshasthesmallestpercentageincrease,thebottleneckismostlikelytooccurhere Thepowerofbuyers Thenumberofbuyersisasignificantfactorthatcontributestothedegreeofbargainingpower,comparedtothenumberofsuppliers.Thewindturbinemarketcontainsmany buyers in shape of utility companies, governments and local states which results in an increasedcompetitionamongthedifferentwindenergycompanies.thefinancialsituation ontheglobalmarketis,asinmostotherindustries,acriticalfactorfordeterminingtheprice oftheprojectthroughnegotiation.chinaandtheu.s.havemadeiteasierforthebuyersto place a good deal, since the many regulations for renewable energy and subsidies have helpedtheturbinemanufacturerstocutcosts,andtobeabletoofferlowerenergyprices. In China, the government buys contracts through SOE s, which by the end of

53 accounted for almost 90% of the installed capacity (Liu & Kokko, 2010). Furthermore, as described previously, in 2005 China required that 70% of the turbines should be manufactured domestically, which limited the buying power in shape of buying from foreign manufacturedwindturbines. InlargescaleprojectswheremanyMWhareexpectedtobeinstalled,theamountof suppliersarerelativelyfew,comparedtosmallscaleprojects,whereespeciallyallthenew companies from the East have increased the bargaining power of the buyer. This can be supportedbythefactthatthesupplychainhasbeenbuildupbothintheu.s.andinchina, shiftingthemarketfrom sellers toa buyers markets.thusempoweringthebuyerwith emphasisonhigherproductqualityandlowercosts(btm,2009). Itisahelpingfactorforthewindturbinecompanytobeabletoprovideawiderange of turbine sizes and have a large portfolio, so that the customer has the opportunity to choosebetweensmallandbigturbines,aswellason andoffshoreturbines.inthiswaythe company having a large diversity of products has an advantage compared to a company havingonlyanarrowrangeofproducts. Vestas is one of the most vertical diversified companies in relation to products. Currently,they provide 14 different onshore mills, ranging from 850kW to 3.0MW, and 3 offshore mills ranging from 3.0MW to the newest project with 7.0MW (Vestas turbine overview,n.d.).beingabletofulfilspecificrequestsandconditionshasbeencrucialforthe amountofordersthatvestasget,anditisacompetitiveadvantageforvestaswhenthey are competing on the market for new orders. When one of the biggest utility companies, EnergiasdePortugalRenováveisplaceda1.500MWorder,itwasnotonlyadeclarationof trust,butitalsoshowedthatvestasareconsideredasoneofthetopcompaniesforexecutinglargescaleprojects(aktionærinformation1,2011). RemarkablyenoughVestashasnotloweredtheirprices(pricedumping),byconsideringtheaggressivecompetition.Theirstrategyhasbeentoconvincethecustomersthatthe products they deliver are of the best quality, and thereby also is worth the money (Aktionærinformation1,2011). Vestashasclearadvantagesinbeingabletodelivertolarge scaleprojectsandhaving abroadportfolio,butin2010vestas profitwasonlybasedonatotalof212customers.the customerdoeshaveagreatdealofpower,whichplacescustomerrelationshipmanagement CRMinapositionofuttermostimportance.Vestas educationofemployeesandconstant 53

54 developmentofnewgoalsforincreasedcustomersatisfactionisanindicatorofhowserious Vestasiswithregardtotheircollaboration.Itisnotonlytheproductsthatmustbeperfect, butthecommunicationanddialoguewiththecustomersisakeyfactorforvestas,inorder forthemtoprovidethebestservice,thushavingthehappiestcustomers Thethreatofsubstitutes Normally,thethreatofsubstitutesisbasedonpriceelasticity,butasdescribedinthe previoussection,windpowerhasnumerousmacro factorfeatures,whichneedstobetaken into consideration. In this context the price elasticity is defined on the output delivered: Electricitymeasuredby$/kWh.BesidesthepriceperkWh,whichforsomeisthedominating factor, elements such as job creation, CO 2 savings, higher degree of independence from fossilenergy,safetyanddiversityinenergyportfolioarealsoofimportanceandshouldbe includedintheconsiderations. The substitutes for wind power are fuel sources and technologies, which can be exploited to generate electricity. The dominant fuel and technology types for generating electricity are the following: coal, gas, nuclear, hydro energy, bio fuel, and solar energy (Cheung2011;EIA,2010b).Inordertoassessthethreatofsubstitutionofthese,twometaanalyses have been conducted. The tables that show the findings are to be found on the next page. Table 13 evaluates the capital costs for generating one kw, whereas table 16 examines generation costs i.e. how much does one kwh cost depending on the technology/powersourceapplied.thetablesareshownonthefollowingpages.sincethe method for calculating the costs are based on numerous different assumptions and methods (like transmission costs and governmental support) it would be incoherent to comparethenumbersfromonesourcetoanother.furthermore,itisafactthatdataonall technologiesarenotavailable.asaconsequenceofthis,thetwotableswillbedescribedin broadtermsandcomparedbypercentage. 54

55 Table13,Capitalcosts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

56 When looking at the capital costs, an interesting trend is that wind power is among the cheapest. The numbers from Sims et al. (2003), point out that wind power is the cheapestoftherenewableenergysources,andjustascheapassomeofthenuclearpower prices.oneveryimportantpoint,whichmodifiesthiscost,istherecentacknowledgement concerningdecommissionofnuclearplants.thiscostoftenequalstheinitialcapitalinvested intheconstructionoftheplant(sovacool,2009).acordingtosimsetatthecheapestoption isgas,whichis50%cheaperwhencomparedtothepriceofwindpower.whenlookingat the data applied by Sovacool, wind power is the cheapest, but the data only includes nuclearandrenewableenergysources.whencomparinghydro,whichhasthelargestshare ofrenewableenergyintheworld,towindpower,itis11%moreexpensive[(((1,900/1,710) 1)*100)=11.1%].AlsoEIA(2010d)placeshydrotobe16%moreexpensivethanwind,which inthiscaseisspecifiedasonshorewind[(((2,291/1,966) 1)*100)=16.%].Onaverageitcan beseenthatwindpoweristhecheapestofallrenewableenergysources.onefinalremark isthecostestimatesmadebydoe(2008),whichinpercentilehascalculatedthelowestcost to be gas, compared to wind, coal and nuclear. Table 14 shows a simple depiction of the data.itranksthecheapestenergysourcestothemostexpensiveones.inthetwoscenarios wheregasisnotincludedintheestimates,windisrankedwiththecheapestcapitalcosts. Table14,Rankingofenergysourcesbyprice Source CheapestMostexpensive (Simsetal.,2003) Gas Wind,Nuclear Coal,Nuclear Biofuel, Nuclear Nuclear PVandsolar (Sovacool,2010) Wind Hydro Biofuel Nuclear PVandsolar (DOE,2008) Gas Wind Coal Nuclear (EIA,2010a) Wind(onshore) Hydro Wind Biofuel PVandsolar (offshore) Whenevaluatingthegenerationcost,i.e.$cent/kWh,someofthenumbersaremore ambiguous.forinstancethecostperkwhforwindpower,asstatedinsimsetal.(2003), spansfrom3 8cent.Theratherimprecisecostisduetothenatureofwindenergy,where varying wind strength will generate power at different costs. In high wind areas costs are low and visa versa. The U.S. Department of Energy has on the figure 15 presented below giventheestimatesforthedistributionofaccessiblewindareasinrelationtocostperkwh. 56

57 The estimates are for both off and onshore turbines. The distribution resembles a slightly uniformdistributioni.e.virtuallyshowsastraight lineincreaseincosts. Figure15,AllocationofU.S.windresources Source:(DOE,2008) The first four rows in table 16 on the next page, shows that wind power prices in AnnexI,non AnnexIcountries(underwhichChinaiscategorized)andtheU.S.,areamong the cheapest. In general for Annex I and non Annex I countries wind power is only to be surpassed by bio fuel as the cheapest. In the U.S., gas appears to be the cheapest source followed by coal and eventually wind. When concerning the average price per kwh for Annex I and non Annex I countries, coal surpasses bio fuel as the cheapest, and as a consequence places wind power as the third cheapest option. Whereas comparing the UnitedStateswithAnnexIcountries,thescenarioisunchanged.Comparingthesefindings withpricescalculatedbykrohnetal.(2009),onecaneasilyseetheimpactonco 2 tariffs whichhasbeenincluded,andasaresultmakeswindpowerthecheapestoption. 57

58 Table16,Generationcosts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

59 Finally,EIA(2010b)numbersshowsthatgasistheoverallcheapestfollowedbyhydro, nuclear, coal and onshore wind power. When comparing wind to coal and gas, which is beingutilizedinpowerplantsthatincludeco 2 captureinthecostofgeneratingelectricity, onshorewindpowerischeaperexceptforgaspricesbyeiaestimates(2010b).thebenefit oftheco 2 captureislessemission,andthussavingsontariffs. Despitetherathercompetitivegenerationcosts,windpowershouldnotbeaddressed solely on these numbers. As mentioned previously, wind power receives various governmentalsupportandbenefits,whichiftheeconomicsofwindpowerwerecompetitive,this supportwouldhavebeenredundant. Anotherissue,isonethataffectstheentireenergysector;theoilprice.Sincetheprice onoiliscorrelatedwithenergy,anaggressive,andhighlyunlikely,pricedumpingbyopec will generate costs of which wind power no longer will be competitive. This was the case whenoilpricesplungedinthesummerof2008,whichleadtoadecreaseof91%ingreen energyinvestmentintheu.s.forthefirstquarterin2009(scott,2009). The consequence of these two matters will have two main implications for Vestas. Instead of focusing on a strategy based on lower prices, which is the standard strategy appliedagainstsubstitutes,oneshouldcurrentlyratherfocusontheotherbeneficialassets which wind turbines possesses. Such assets could be water savings, green energy, life qualityintermsoflesspollution,jobcreationandasuitableoptionforacountry senergy portfolio.thisbeingsaid,itwasnotanattempttodiminishtheimportanceofthecosts.the importance of R&D within this field can hardly be overstated. It is only through intense investmentsinr&dthatwindturbinesovertimewillbeoptimized,thecostwillbereduced andthepricewillnolongerbeanissueofmatter. 59

60 4.2.5.Rivalryamongexistingcompetitors The market for wind turbines is dominated by ten companies, who in 2010 had a combinedmarketshareof78%.vestasiscurrentlystillthebiggestsupplierofturbineswith aworldmarketshareof12%.figure17belowshowsthemarketsharein2010. Figure17,Marketshare2010 Marketshare2010 6% 5% 4% 22% Others Vestas Sinovel 7% GE Goldwind 7% 12% Enercon Gamesa 7% Dongfang 10% 11% Suzlon SiemensWindPower 10% UnitedPower Source:(MakeConsultingandBTM,ascitedinWindfair2011) Asthegraphshows,43%ofthemarketisdominatedbyfourcompanies,andalthough Vestasatthepresenttimeismarketleader,themarketsharesandthusthecompetitionis quiteclose.nonetheless,vestashasoneclearadvantagecomparedtoitscompetitors.they are less dependent on one specific market. Vestas is generating its revenues from three differentmainmarkets:europe/africa,americaandasiapacific/chinaonwhich49%,29% and 22%, respectively are placed. According to Vestas track record (Vestas, 2010c), their windturbineshavebeeninstalledin64countries.aspreviousstated,thiscategorizesvestas astheonlyglobalsupplierwithintheindustry. In the U.S. GE is the indisputable market leader, with more than 46% of the market sharein2009(gwec,2010).thestrongpresenceintheu.s.explainswhyge smarketshare isamongthebiggest,butalsodisplaysge sdependenceontheu.s.market,andgivesan 60

61 explanationofge slimitedpresenceontheinternationalmarket.eventhoughgerecently increaseditsactivityonthechinesemarketthroughajvwithlocalharbinpowerequipment Company, they are still dependent on the home market(red Herring, 2010). In total GE s 49%shareoftheJVisassessedto$26.7million. VestasmarketshareintheU.S.wasin200718%.InorderbemorecompetitiveVestas has set up manufacturing facilities in the U.S.. This eliminated foreign exchange rate risks andloweredtransportationcosts.morethan$1billionwereinvestedinthemanufacturing plant located in Eastern Colorado (Ryser, 2010). An investment of this size naturally facilitatedahighbarriertoexit,sincefailureintheu.s.marketwouldbecatastrophic,and asaconsequencevestasisforcedtohavesuccessintheu.s.market.table18belowshows themarketsharesfor2007ontheamericanmarket. Table18,U.S.marketshares Company GE Vestas Siemens Gamesa Marketshare(07 ) 46% 18% 16% 10% Source:(Ryser,2010) ThetendencyforagreenfieldinvestmentintheU.S.doesnotsolelybelongtoVestas. Siemens invested $50 million in a nacelle assembly plant, Gamesa also built a nacelle and blade factory, while Suzlon invested in blade manufacturing plants located in Minnesota (Ryser, 2010). Vestas investments includedr&d facilities, nacelle, tower and two blade factories, which could supply 90% of components required for the assembly of a final turbine(vestas,2011).theinvestmentsbysiemens,gamesaandsuzlononlycoveredpart of the production, and as a consequence, they have to import various components which willincreasetransportationcostsandeventuallytheentirecostoftheturbine. WhencomparingVestas initialentrymodewithhowtoyotaenteredtheu.s.market, one can see clear similarities. In the beginning Toyota gained a significant market share through export(hill, 2009). A JV with General Motors and eventually a green field investment was carried out in order to minimize transportation costs, avoid import quotas and hedgeforforeignexchangerisks.toimproveefficiencyandqualitytoyotaemployeesand suppliers were given education and the result was double and triple digit growth in productivity.theeducationofemployeeshaslikewisebeeninitiatedatvestas. 61

62 The increased productivity and Table19,Turbineoverview high level of quality can be traced to Toyota s obsession for continuously improving and making operations more effective. These factors are some of the main drivers behind Toyota s success, and at the current moment, Vestas is somewhere in the phase of educating employees,whicheventuallyshouldlead to higher productivity, quality and effectiveness. Ditlev Engel states that Vestas commitmenttowardsqualitywill be its main competitive advantage,whencomparedtoitscompetitors (Aktionærforeningen 2, 2010). And seen how Toyota has conquered the U.S. marketthroughthisstrategy,itshould,if implemented correct, give Vestas the competitive edge, which will lead to an increasedmarketshare. The biggest competitors in China are the SOE s Sinovel, Dongfang and Goldwind. Their standard technology is the 1.5MW and 3.0MW turbine. Vestas has the 4 th biggest market share. The competitionwiththesecompaniesisstill strictly local, since total exports by Sources: (Vestas turbine overview, n.d.; Chinese wind turbine companies only Sinovel turbine overview, n.d.; GE turbine counted 21 turbines in 2009 (GWEC, overview,n.d.;goldwindturbineoverview,n.d.) 2010). What sets China significantly asidefromtheu.s.,istheamountofturbinemanufacturers.over60localmanufacturers supplythechinesemarket,andsincethesmallerfirms technologicallevelandexperienceis 62

63 lessthanvestas theyarenotyetindirectcompetition.,theyshouldstillbetakenserious since being a rather unpredictable threat as they have to act and manoeuvre their operationsinquitecreativeandinnovativewaysinordertogainmarketshare.accordingto Christensen(1997)thiscouldverywellleadtosmallcompaniestointroduceproductswith traitsthatwilldisruptthecurrentmarket. Accumulated, these 60 turbine manufacturers capture about 75% of the Chinese market.onecouldfeartheconsequenceofstrategicalliancesamongthese,butaccording toliandatuahene Gima(2001)suchalliancesactuallyhindersthetechnologicalandinnovative performance of new venture companies. This might be due to scares managerial resourcesandinexperience.however,thestudiesbyliandatuahene Gima(2001)didnot differentiate the type of alliances, and thus one can only assess an overall generalization. The studies did although indicate that support from governmental institutions are quite importantinordertoincreasetheeffectivenessofthesenewventures.someofthegovernmentalsupportandincentivesareontheborderlinetowhatisfaircompetitionaccordingto WTOrules(Ichniowski,2010).Asaconsequence,thisgivestheChinesemanufacturessome leverage, when compared to Vestas and other foreign companies. Especially the bigger companies such as Sinovel, Goldwind and Dongfang, has an extra advantage additional to economicsofscale. Besides the Chinese manufacturers, GE is an obvious threat. Alongside GE, Siemens shouldalsobeconsideredasathreat.notsolelyduetotheirmarketshare,butduetothe fact that both companies are on Fortune 500 and placed on place no. 13 and 40, respectively which implies that their financial backbone is rock solid(global 500, 2010). Fortune 500isamagazinethatrankscompaniesbytheirgrossrevenue. An additional factor in gaining leverage over one s competitors is through product differentiation. Table 19 shows the product portfolio of the four leading manufacturing companies; Vestas, Sinovel, GE and Goldwind. The first part of the table shows all the products,whichthegivencompanyhasinitsportfolio,wherevisthediameteroftherotor measured in meters. The second part of the table allocates products by capacity (kw or MW).ItisinterestingtonoticethatVestasasmarketleaderhasthebiggestproductportfolio, which makes them more capable of delivering the specific product required by the customer. Additionally, Vestas turbines can be delivered with a GridStreamerTM system. Thisnewsystemtakesintoconsiderationthedifferentgridrequirementsinvaryingmarkets, 63

64 andthegridstreamertmisbuilttoensurehighergridstability.vestas combinationofsize, transportation ease, and the GridStreamerTM system awarded their V90 3.0MW turbine with a gold medal for Most Innovative Power Technology of the Year by Asian Power Awardsin2010(Vestas,2010b). WhatdistinguishesVestas portfoliofromitscompetitorsisthewidearrayofproducts both in terms of rotor size, but even to a higher extend in terms of capacity. Sinovel has concentrateditsmodelsroundthe3mwturbines.thesametrendcanbeseenatgeforthe 1.5MW model. This leaves one implication for Vestas. As previous mentioned, Vestas can deliverproducts,whichmightbemoreoptimalinagivenenvironmentduetotheextensive portfolio. A possible trade off could decrease this advantage. Since Sinovel, GE and Goldwindbasicallyusesthreeturbines,inrespecttoMW,thisstreamlinesandstandardizes operations to a bigger extend and thus might generate further economics of scale. The statementbyditlevengel,whostatesoutthatvestas strategywillnotbebasedonprice dumpingbutquality,reinforcestheassumptionthatvestasfocusesmoreonquality,andas result appears less price competitive (Aktionærinformation 1, 2011). The projected operatinglifetimeofawindturbineis20years,andonecouldimagineascenariowherein thelongrunaqualityturbinewillactuallybecheaperduetoreducedo&mcostsandlonger serviceperiod. Vestas has specified the 850kW turbine for the Chinese market, and this turbine is 100%producedinChina.Itissuitedforthespecificenvironment,andfurthermoreeasyto transport and as a result less dependent on good infrastructure(vestas turbine overview, n.d.). As it can be seen from table 20, in 2008, this type of turbine was among the most popular. Aquiteinterestingobservationisthatin 08,69percentoftheturbinesinstalledwere smallerthan1mw. Table20,Allocationofinstalledcapacitybyturbinetype(MW) Sharein kW 750kW 850kW 1300kW 1500kW 2000kW Other Shareofcapacity(%) Cumulative(%) Source:(ChineseWindEnergyAssociationascitedinLiu&Kokko,2010) 64

65 YetVestashavebeenunwillingtostartupproductionoftheirlargerturbinesinChina. Thisisduetothefear,eventhough,asmentioned,thepatentlawshavebeenstrengthened, ofimitationandtechnologytransfer(heascitedinliu&kokko,2010).theremainingparts are imported, and as a consequence it generates more cost due to loss of governmental subsidiesandtransportationcosts(liu&kokko,2010).currently,thestandardforturbine capacity is increasing, and the 2 3MW class is becoming more popular, when seen from a supplieraspect.inthefuturevestas,thoughtheypursuequalityoverprice,mightendina situationwheretheyhavetomoveproductionofbiggerturbinestochina,inordertolower costs. The startup of a production and further investment in China is primary a question abouttiming.iftheystartproductiontooearly,thethreatofimitationwillbehigh,whereas ifvestasreactstoolate,theywilllosepossibleprofit.inotherwords;productintroduction, in the sense of when to start producing bigger turbines in China, is quite critical for operations. Thecompetitioninmakingoffshoreturbinesisafairlynewmarketthatshowsgreat potential.althoughtheprospectsaregood,thecompaniesembarkingintooffshoreprojects are still very cautious. High costs of installation, lack of grid capacity, few suppliers for marineturbinesandinvestmentcapitalhasputupanaturalbarrier(btm,2009). Floatingoffshoremillsarestillonlyattheexperimentallevel,andhavingalltherisk factors to take into consideration, makes many turbine manufacturers concentrate on developing onshore projects. This being said, a few companies are competing on offshore contracts (BTM, 2009). The pioneers are Siemens Wind Power and Vestas that through many years of testing and development, has established themselves as market leaders in producing offshore turbines. Far behind are RePower and GE and other new entrant companiesthatoperatewithprototypesandexperiments(btm,2009).oneofthereasons for the ranking in the offshore market is due to the European shallow water technology (deployingmillsat20 30meters,highest),whichU.S.andmanyothercompanieshavenot beenabletouseintheirowndomesticwaters(doe,2008). It is also estimated that offshore wind capacity is around 50% more expensive comparedtoonshorewindenergy,butthattheoutcomeoftermsofloadhourscanreach the double. These estimates put pressure on smaller companies, to invest in offshore technology, in order not to lose market shares in the future (Krohn et al., 2009). It is however a longsome process that require many years of planning, and according to 65

66 GibsonandHowsam(2010)thetimeframefromcontentapplicationtillcompletioncantake several years. The analysis is based on UK processes and administration, but the UK structure is not necessarily the same in other countries. As a consequence of the development,projectsinchinaandtheu.s.havethoughbeenstarted.thus,waterturbines havebeendeployedinbothcountries,bydomesticcompanies,butitstillstaysbehindthe Europeandevelopment(GWEC,2010). Toyota s progress on the Chinese market is once again quite similar to Vestas. The followingcasepresentedbybuckleyandhorn(2009)pointsoutsomeoftoyota ssuccess factors.withmorethan200localandforeignautomakersonthechinesemarket,itshares someofthesametraitsasthemarketforwindpowermanufacturers.toyotastartedwith importing cars, followed by a JV, and finally manufacturing facilities were built through Greenfield investments. Next step were tailored products, specific for the Chinese market and produced completely under the Toyota brand. The 850kW turbine from Vestas has a similar background. Once being established on the market and after having captured a significant share, the more expensive luxury model was introduced. Despite a latecomer disadvantage, Toyota succeeded in gaining a 10 per cent market share. The success was mainlyduetotwofactors;productintroductionandspeed.toyota sinitialproductshelped them gain market share and once R&D, manufacturing and supply chain for these were established,moreexpensiveproductswereintroduced.inthiswaynewentry modelswould benefitfromthepreviousoperations(thehaloeffect).thesecondfactorwasspeed,since the Chinese market is highly volatile and in a constant flux. The speed of operations was ensured with decentralization, and thus empowering local subsidiaries to manage the necessarychangesinthemarketenvironment.vestashasestablisheditsfoundationwithits 850kWturbine,andbiggerturbinesareimported.UnlikeToyota,productionlocationofthe biggermodelisfurtheraway,whichwillhaveaneffectoncosts.insteadofbeingtheleader of the production, Vestas should wait for the market to decide what the new standard shouldbe.previousitwasthe kWturbines,butasinvestmentininfrastructureand morestablegridconnectionsincreasesodoesthebenefitsforinstallingbiggerturbines.as aconsequencethenewstandardturbinewillbeinthe2 3MWclass.Vestasshouldstart producingthelesshigh techcomponentinchinafortheirbiggerturbines,whileimporting theessentialpartswhichcouldbevulnerableforthethreatofimitation. 66

67 Asforspeed,VestashassubsidiesinChina,butdataconcerningtheirmanagement andlevelofautonomyisratherdifficulttoretain ConclusionofPortersFive Following is a summary of some of the main points discussed and analyzed in the PortersFivemodel.ThethreatofentrantsisfairlylowintheU.S.andwilldeclineinChinaas thedemandwillbemet. Since most of Vestas components and parts are produced in house the power of suppliers is reduced, although gearboxes are still a crucial part, since it is supplied by independentmanufacturers. The power of buyers is considerable since the customers for Vestas only numbers around 200. In order to accommodate this, Vestas has to apply CRM and good service in order to retain and keep customers for further sales and profit generation. This is not limitedtotheu.s.andchina,buttooperationsworldwide. Thethreatofsubstitutesistwofold.Ononesidewindturbinesshouldnotbejudged byitsprice,butratherontheadvantagesthataccommodateswindpower.thisplaceswind energy in a unique position since no other renewable energy has the exact same traits. However,whenconsideringprice,historyhasshownthatoilpriceandotherfossilfuelscan haveagreateffectontheattractivenessofwindpower.inrelationtothat,iftheoilprices wouldsuddenlyplunge,vestas productswouldbemoreunattractive.duetofocusonco 2 reduction,theeffectthereofwouldprobablyonlybeintheshortrun,sinceoilandfossils, nomattertheprice,stillwillleadtoincreasedemissions.withprospectsforincreasedfossil prices,anddecreasedcostsforturbineproduction,theattractivenesswouldonlyincrease. The onshore rivalry among existing competitors is fairly high, and the recent market development has equaled the market share of the top 10 companies. In the U.S. General Electric is dominating the market, but investment in production plants for Vestas bigger turbines,seemsasagoodcounterattackinordertochallengege sstand.inchinasinovel, Dongfang and Goldwind are the biggest players, but recently small companies have emergedduetotheunsupplieddemand. Vestas advantage in both markets is their experience, diverse horizontal product portfolio,qualityandtechnologicalleveloftheirproducts.withtheoffshoremarketvestas hasanimpressivemarket share,andbeingengagedwiththetechnologyandhavinglearnt 67

68 through trail and errors, give them an advantage compared to novices in the offshore market. 4.3.Theeclecticparadigm In order to fully assess and have a complete understanding of Vestas strategic advantages, the Eclectic paradigm also known as the OLI model, by Dunning (2001), has been applied. The reasoning thereof is that some of the strategic advantages obtained by VestascannotbeevaluatedbyoperationsinChinanortheU.S.,butasanoutcomeoftheir globalendeavor.theeclecticparadigmrepresentstheideathatthedispositionofaglobal firm is based on three factors; ownership advantages, location advantages and internationalizationadvantages. Vestaswasforcedtoengageintheglobalmarketandactglobalduetotheinsufficient home market. Since several competitors only are represented in their home market, (referring to Chinese turbine manufacturers), Vestas will be able to gain an advantage by some assets acquired through their global operations. To get a concrete overview of the advantagesthataremoredistinctiveforvestas,somegeneralfactorshavebeenexcluded. TheadvantageofproductioninChinagivesaccesstocheaplabourandmanufacturing,and removes some transportation costs. When compared to firms that import their parts and products, Vestas has an advantage due to their vertical integration. Nevertheless, when seenincontrasttochinesefirms,theadvantagevanishessincebothhavethesameprerequisitesconcerningcheaplabourandproduction.correspondingistheexampleofpolitical support.sincethisassetisnotstrictlyreservedforvestas,butingeneraltargetstheentire industry,itdoesnotpointoutaspecificadvantageforvestas Ownershipadvantages When operating on a global scale, the ownership of certain acquired assets, which oftenareintangible,iscrucialforovercomingthecostsoccurringwhenconductingbusiness abroad.the costofforeignness isgeneratedthroughfactorssuchasattainingknowledge concerningthenewmarkets,communicatingandoperatingatadistance,andovercoming legal,institutional,culturalandlanguagecontrast.inemergingeconomiessuchaschina,an understandingoftheinstitutionalframeworkisimportantinordertounderstandtheimpact 68

69 of strategies applied, but also how the institution affects the company itself (Hoskisson, Eden,Lau&Wright,2000).SinceVestashassubsidiariesintheU.S.andChina,thepsychical distance to the market is decreased, but the other factors are still present. Some of the main intangible assets that Vestas have acquired are technology and managerial skills. Vestas intense investments have, although it required a sacrifice of the EBIT margin, resultedinr&dfacilitiesinsevendifferentcountriesworldwide. TheglobalR&Dnetwork,whichhasbeenestablished,hassomeprosandcons.Since beingdecentralized,itenablestheseparatefacilitiestofocusmoreontherequirementsand environment in their particular market, and therefore develop products designated for a particular environment, purpose and function. An example thereof is the GridstreamerTM systemandthe850kwturbines.thedispersionofnumerousr&dfacilitiesenablesanother benefit;knowledge transfer.experiencesanddevelopmentsinonemarketcanbeappliedin other markets. An example is the possible drawback of the duplication in a given R&D process,whichwillneitherincreaseproductivitynorgenerateprofit. Besides R&D, Vestas has, by being one of the pioneers within the industry, gained experience and understanding through trial and error. When comparing total installed turbines,vestashascurrentlyinstalledover35.500turbines,whichisapproximately morethangeneralelectric(geturbineoverview,n.d.).bothr&dandhands onexperience havecontributedtothecurrentleveloftechnologyandgiventheirproductsanadvantage edge. Whereas Vestas technological expertise ensures that their products are competitive, the managers and mindset at Vestas ensures growth in the global market. Unlike Chinese competitors (Sinovel, Goldwind & Dongfang), Vestas small and limited home market has workedasacatalystforengagingearlyintheglobalmarket.thisevolutionhasfacilitateda moreglobalmindsetandadiversemanagementwith49%oftoppositionoccupiedbynon Danes.Thediversityandearlyexperiencesbyoperatingontheglobalscenedoesenrichthe management,andshouldbeseenasanadvantage. 69

70 4.3.2.Locationadvantages Thelocationadvantagesisthekeydeterminingfactor,whenacompanychoosea markettoexpandin. Thewindstrengthisnotachangeablefactor,whichmeansthattheresourcesinthebest suitedareaareunlimited,andtherebyequalforall.althoughthelocationsofwindresourcesaredeterminedbytheglobalclimate,therearestillseveralfactorstotakeintoconsiderationwhenexpandingtootherareas. Asmentionedearlier,Vestaswasatanearlypointforcedtolookattheglobal possibilities,duetothelimitedexpansionpossibilitiesonthedanishmarket.expandingto themostprofitableandpotentialmarketsforwindenergy,inthelightofdemandandwind resources,vestashasformanyyearsdevelopedtheirlocationstrategy,andtherebyalso increasedtheirlocationadvantagesastheymovedintonewmarkets.asthecompetition grewandmorecompetitorsenteredthemarket,vestas locationadvantagesdiminished. Beneficialfactorssuchascheaplabourandpoliticalsupportarenowbeingexploitedby numerouscompaniesbesidesvestas. ThelocationadvantageofVestasisironicallynotduetoasinglelocation,butbybeing globallyestablished.thisfacthasreducedtheriskmanagementofoperations,sincetheyno longerhavetorelyonasinglemarket,butcancollaborateacrossseveralmarkets.being abletosupplychinafromchina,andtheu.s.fromtheu.s.hasnotonlyreducedtransportationcostssignificantly,buthasalsobeenaconsequenceofthepoliticalenforcements ofturbineproduction.inchina,70%oftheturbinemustbeproduceddomestically,whereas thenumberis50%intheu.s. The decentralization has also brought other positive economical adjustments. The exchangerateriskexposurehasbecomeamorecontrollablefactor,sinceforeigncurrency volatilityisreducedwhenthepartsareproducedinthesamecountryastheyaremeantto be set up. This kind of currency hedging is defined as operational hedging, and it has become a popular choice, to accommodate eventual exchange rate risks and political instability. IncreasingtheforeignactivitiesandFDIhascontributedtothefactthatVestas currentlyhasinstalledover40,000turbines,andthataturbineisinstalledevery4thhour aroundtheclock(vestas,2010c) 70

71 4.3.3.Internationalizationadvantages TheadvantagesthatVestashasacquiredthroughtheinternationalmarket,haveonly been obtained since they have utilized their owned subsidiaries in their entry and growth strategy, instead of licensing and exporting products. The advantages by own production ratherthanproducingthroughapartnershiparrangement,islessnegotiationwithoutside partners, tighter control over operations, higher protection of know how and more knowledge sharing between the different facilities. Although risks associated with establishingtheirownsubsidiaryarepresent,thelongtermgoalis,thatitismoreprofitable tousetheadvantages,ratherthansellingthem. 4.4.SWOT TheaimfortheSWOTanalysisistosum upthefindingsfromthepestel,portersfive andolianalysis Strength Having been the pioneer in the wind turbine manufacturing, Vestas has through severaldecadesdevelopedastrongpositiononthemarket,notonlybybecomingtheworld leader in turbine manufacturing, but also by proving their rights by building strong, well functioning wind turbines, strengthening their brand and being at the cutting edge in technology. Inlateryearsoffshoretechnologyhasbeeninfocus,duetothemassivepotential,and by the newest addition, to an already impressive portfolio, Vestas has set the bar high by introducinganew7.0mwoffshoreturbine(vestasturbineoverview,n.a.). ThelargeststrengthforVestashasbeenmanyyearsinthebusiness,developingknowhowandbecomingaglobalcompanywithproductionfacilitiesallovertheworld. Having decentralized manufacturing, and thereby cut costs in transportation, integratedverticallywithseveralsuppliers,andreliedonastrongmanagementwithditlev Engel as the leading character, are all factors that have contributed to today s promising futureprospects. 71

72 Some of the advantages that accompanies decentralization are better flexibility and fasteradaptiontothespecificenvironment,betterdecisionmakingprocessesduetomore detailedinformationaboutthemarketdevelopments,andmostimportantabettercontrol ofcompanyresources(hill,2009).thesefactorscanalsobeassessedwithregardtovestas from the fact that they have managed to expand to several markets globally with the concept;intheregion,fortheregion(aktionærinformation1,2011).withastatementlike thatfromvestas,itleadsthethoughtstotheterm,glocal,whichfitstheirstrategyofbeing a Danish company, with subsidiaries around the world that acts according to the local marketenvironment. TheexperiencethatVestashasgainedthroughseveralyears,canbeseeninthelight ofhavinganaccumulatedmarketshareof45%ontheoffshoremarket,andeventhoughit isastrengthandanimpressivenumber,aminorcriticalmindwouldputthenumbersinto context,sincethe45%onlymakesup3%ofvestastotalinstalledmw,whichconcludesthat even more energy could be invested in the huge potential there are in offshore projects (Vestasannualreport,2010) AssessmentofVestas strengthsfromaresource based view According to Barney and Clark(2007), the SWOT model does have its shortcomings, sinceitfailstosetupamechanismorlineofcriteriainordertoidentifythestrengthsofa company.theessenceoftheresource based view(rbv)istodoexactlythat.theresource is being defined as an asset (tangible or intangible) such as management, knowledge, information, organizational processes, R&D processes and so on; which will contribute to andimprovetheoperationswithinthecompany(barney&clark,2007).thecriteriafora keyresourcearethattheyhavetobevrin; Valuable inthesenseofeitheroutperformingcompetitorsorreducingweaknesses. Rare In imitable theresourceshouldbedifficulttoduplicate Non substitutable Unlike the Five Forces by Porter, the RBV is based on assumptions that resources beingcontrolledbycompaniesarenothomogeneous,andfurthermorenotperfectlymobile 72

73 acrossdifferentfirms,thusheterogeneityofresourcescanbelonglasting.vestas strengths are, as previously mentioned their brand, experience and skills, both technological and managerial,gainedfromexperience.furthermore,importantstrengthsarealargedegreeof decentralization,riskmanagementwithregardtolessdependencyonasinglemarketand moreflexibilityandknow howwhichiscreatedthroughr&d. When judged by the VRIN standards, the advantages of decentralization, risk managementandr&ddoesnotliveuptothecriteriaconcerningbeingin imitableandto some extend neither rare nor non substitutable. Although if the R&D is defined as the processbeingundertakenwhenconductingresearch,thiscouldalsoberare,in imitableand non substitutable. InordertofullyevaluatethisR&Dprocess,empiricaldataandmorein depthanalysis isrequired.anexampleofauniquer&dprocess,andonthataccountalsoaresourcewhich leadstoasustainablecompetitiveadvantageistheoneknownasgoogle.theprocessitself oftenfulfillsallthevrincriteria,whichisthecasewhenassessingtheknow howandskills generated through experience. Both technological skills and managerial skills are very difficulttoimitate,valuableforthecompany,non substitutableandrare.thesameapplies tothevestasbrand. In 1991, Priem and Butler s critique of the RBV raised several important issues concerning the criterion for assessing a resource and the development of value (Barney, 2001).ThefirstissueisthattheRBVistautologicale.g.avaluableresourceisaccordingto the VRIN criteria s valuable, which is self verifying. Besides the tautological critique, the model fails to acknowledge the possibility of equifinality (Barney, 2001). The problem of equifinality is based on the fact that several different resources can generate the same advantages,andasaconsequence,couldnotbeasourceofcompetitiveadvantage.despite the critique raised by Priem and Butler, the resource based view accommodated by the findings of the OLI and Porters Five, substantiates the strengths and advantageous resources. 73

74 4.4.2.Weaknesses Through our analysis of Vestas and the market for wind turbine manufacturers, we havemetmanyfactorsthathavehadaremarkable,eitherpositiveornegative,effectonthe companies.vestashasthoughmanagedtokeepasteadycourse,butinbetweenthelines, someargumentsappearasweakspotsfortheleadingturbinemanufacturer. To Vestas, a company that solely operates on turbine manufacturing, a variation in orderintakeshasclearconsequences.notonlydoesitaffectthepotentialearnings(ebit), buttheshareholdershavewatchedtheirsharesplummet,asintheperiod where theorderintakedroppedfrom6.131mwto4.057mw,adropof34%(aktionærinformation 1,2011). Anotherexamplewasin2008wherethesharepricedroppedfrom692to191,inonly two months; resulting in an unbelievable drop in market value of more than 10 billion! AlthoughVestasquicklyrecovered,thetrustandcredibilitytookaserioushit,whichcould onlyberestoredthroughprogressandhardwork(aktionærforeningen1,2011). Theweaknessisonlyclear,seeninacomparisonwithcompanieslikeGEandSiemens Wind Power, which both are companies that have a diversified portfolio and operates on different markets with different products. Although the drought can hit all companies, it doesnothavethesameeffect,ifthereareotherdepartmentsofacompanythatgoeswell. BothGEandSiemensareconglomeratecompanies,operatinginmulti industries,andlisted asrespectively#13and#40onthefortune500. Another common weakness in the wind turbine industry is the heavy reliance on political support in promoting renewable energy. As mentioned earlier in the report, the politicalincentivesforencouraginggreenenergyinformoffinancialsubsidies,iscriticalfor themanufacturersinordertoensureprofits. Thesamegoesfortheincentivesinimplementinggridconnectiontotheprojects.The two markets of interest (U.S. and China) have both invested heavily in improving and developing grid systems to ensure the supply of energy. Having wind parks with nonsufficient grid lines is waste of energy, and it has therefore become a complementary processinwindturbineprojects. 74

75 4.4.3.Opportunities Thereareseveralopportunities,whichmighthelptoensureVestas futurerevenues and advantages. Recently, the offshore turbines have become more attractive. One disadvantage is the increased cost related to the construction of the foundation, and that offshoreturbines,whenbottom mounted,requiresshallowwaters(borgen,2010).inorder toovercomethesedisadvantages,floatingwindturbinesarecurrentlybeingconsideredasa solution.besidesavoidingfoundationcosts,afloatingmillwouldovercometherequirement of shallow waters, and as a consequence could be installed places, which previously were economicallyunjust(borgen,2010).countries,whichareinshortageofshallowwaterssuch as USA and Japan, will suddenly be able to generate offshore wind power. This could suddenlybecomeahugepotentialforvestas,with45%oftheoffshoremarket,andmany yearsofexperience,theycouldbethefirsttooperateontheseplaces,comparedwithother offshore manufacturers. The entire construction process it though time consuming, but influencing the political decision process through lobbying, could help accelerating the process. Another opportunity is the option of vertical forward integration i.e. generation of revenuefromtheelectricitythatthewindturbinesproduce.onecouldimagineacontract where Vestas would sell its turbines at reduced price, and in exchange Vestas would be granted a certain percentage of revenue that the sales of electricity would generate. A benefitthereofwouldbelong term,stableandpredictableprofitsources. In 2009 Vestas announced that they would collaborate with Boeing s R&D departments for mutual benefits(vestas, 2009). Although Vestas currently has the largest R&D unit in the wind turbine industry, collaboration with Boeing could lead to interesting joint research projects and investments (Vestas, 2009). Vestas, compared with General ElectricandSiemens,isstrictlyawindturbinemanufacturerandasaconsequencecannot transferknowledgegeneratedinotherbusinessareas,whichimpliesthatcollaborationwith Boeingmustbeseenasagreatopportunity. AnotheropportunityforVestaswouldbetoincreaseverticalintegration,bothfor and backwards.forwardintegrationwouldbeconstructionofpowergridandtransmission,and invest or partner up with utility companies, and managing the sales of electricity. While backwards integration would secure critical components, through a closer collaboration 75

76 with suppliers. E.g. the U.S. market does currently have over 400 companies with wind turbinemanufacturing Threats Some of the primary external threats which Vestas is currently exposed to involve bottlenecks,imitationsoftechnologyinchina,disruptivetechnologiesandthedevelopment in other renewable energy industries. As long as various parts of Vestas components for theirturbinesareoutsourced,theywillfacetherisksofaholdupinproduction.anoption couldbebackwardverticalintegrationorproducingthecomponentsin house,inorderto accommodatepossiblebottlenecks. The threat regarding imitation of technology in China will probably decrease in correlationwithastrengtheningofpatentlaws.althoughthiscouldprotectvestastosome degree,atighteningoftheselawswillnotshieldthecompanyfromthethreatwhichcould arise from disruptive technologies. The term was introduced by Christensen (1997), and describesaninnovationwhichdisruptsthemarket.theinnovationconsistedinkeepingthe initialfunction,butreorganizingitintoadifferentpackage/form.theattributesofthenew product were only valued by a small emerging customer segment, and therefore of little importance, compared with the regular customers. The disruption occurs when the attributesoftheinnovativeproductarevaluedhigherandpreferredbythemainstream.in otherwords,inadisruptivetechnologyitisnotthemainfunctionoftheproductthatdiffers fromtheprevious,butmoretheusabilityandimplementationofthesame. In order to clarify this, Christensen (1997) used the hard disk drive industry as an example. The main attribute of the first hard disk was storage capacity (Mb). As a consequence the $/Mb became the measure of how good the product was. As mini computerswasintroducedonthemarketin1981,asmaller8inchdiskdrivewithahigher $/Mb followed. Since this new product did not have a low $/Mb ratio, the manufacturers andmainstreamsawthe8inchdiskasunimportant.astheminicomputergainedmarket share,sodidthe8inchharddisk,andeventuallyitbecamethenewstandard.thesuccessof the8inchdiskdrivewasitssize,whichallowedittobeinstalledintheminicomputer. ThereasonthatChristensenchosethisindustrywastheinstabilityofitsnature,and howitevolvedthrougharepeatingpatternofdisruptiveinnovations.the8inchdrivewas superiortothe5.25inch.howeverthepriceofthe8inchwasnotsuitablefornewdesktop 76

77 computers. Though the $/Mb ratio for 5.25 inch was much higher, it had less capacity resulting in lower unit compared to the 8 inch, and as a consequence was installed in desktopcomputers. In order to hedge this threat, wind turbine manufacturers should observe for new smallinnovationswithintheirmarket.ifanupcominginnovationisdiscovered,vestasmight have to either invest directly in small firms or create spin offs that might embrace these innovations,andasaconsequenceovercomethisthreat.iftheinnovationisdisruptive,the company could integrate this in their portfolio, and as a result remain competitive. This proposalwillalsohelpvestastostandstrongeragainstthesmallcompanies,bothsuppliers andmanufacturersthatmergeduetotheunsupplieddemand. A final threat for Vestas operation is market limitation/saturation. Although current demandishuge,therewillbeanaturallimitforhowmuchwindgeneratedenergyacountry canrelyon.thenaturallimitissetbythethoughtofhavingadiversifiedenergyportfolio, andasaresultthemarketwilleventuallybesaturated,andreplacementofoldturbineswill becomethemainincomesource. 5.Recommendations Thefollowingisapresentationofourmainfindings,thestrategiesforcopingwiththeseand furtherbenefitsfromthestrategiesrecommended. Findings LimitedpatentlawsretainsVestas productionofadvancedturbinesinchina. Theproposedactioncouldbe: TimingforproductintroductionandproductioninChina. WhendealingwithChina spatentlawsandinrelationtothat,theriskofimitation,timingof productintroductionandlocalproduction,isanaction,whichwoulddecreasetheriskand threat.fromouranalysis,oneofvestasmainstrengthsistheirtechnologicalknow how, andshouldbepreservedasmuchaspossible. 77

78 Findings Lackoffinancialstrength. OffshorecompetitionwithSiemens. Theproposedactioncouldbe: Exploittechnologicaladvantages. Influencepoliticaldecisionprocessthroughlobbying. Vestasshouldcontinuetodeveloptheirtechnologicalskills,know howanddiverseproduct portfolio. Through R&D more products such as the latest 7MW offshore turbine, can be introduced to the market. R&D will also be essential in developing offshore turbines to deep waterturbines,whichisbestsuitablefortheu.s.environment.theimplementation thereofwouldchallengegeneralelectric sdominancewithintheu.s.market,andsiemens positionintheoffshoremarket.theinadequatelegalframeworkforoffshoreturbineshas to be strengthen. An option for this is to engage in lobbying and push for a quick implementationofthelegislationrequired.ifnecessaryorganizewithothercompaniesandu.s. stateswhichhaveinterestinoffshoreproducedwindenergy. Findings Vestasproducesmanycomponentsin house,butdoesstillencounterabottleneck problemforsomeparts. Inbothmarkets,smallcompanieshaveemergedduetotheunsupplieddemand.The smallcompaniesconsistofsuppliersandmanufacturers. Smallcompaniesmightcomeoutwith"disruptiveinnovations". BoththeU.S.andChinawantstohavedomesticproductionandpoliticalincentives encouragethis. Themaindemandtendstocomefrombiggerprojects. Chinaislookingforquickandreactivecompanies. Bigproductionplantsarerequired. Theexpansionandconstructionofpowergridandtransmissioncausesbottlenecks. Revenueiscurrentlygeneratedthrougharathersmallcustomerbase. 78

79 Theproposedactioncouldbe: Moreverticalintegration,tobecomemoreindependentfromsuppliers. Tosetupaninfrastructureforbigproductionplants. Toimproveflexibility,individualserviceandthepotentialofinnovation. Thesolutiontothat,andtheabilitytomeetdemandandexpandthebusinessarea, mightbeacloserco operationwithsmall,innovativeandflexiblecompaniesatalllevelsof production,supplyandinstallation.givingthemthepossibilitytoparticipateinbigprojects and in consequence eliminate them as competitors, gaining individual service flexibility, secure innovation and the supply of crucial parts. The subsidiaries should be given more autonomy depending on their size and credibility. For China it would lead to a faster decisionprocessandlocalproduction.intheu.s.,theindividualserviceforthecustomeris very important, due to the liberal market perception. The aim for the subsidiary is to enhancebettercustomerservice. Gaining control over installation would give the opportunity to integrate grid connections and transmission as a part of the package deal when assigning a project to Vestas. The result would be a reduction of bottlenecks created by the lack of power infrastructure. Partnerships with both suppliers and grid companies would remove the threat of dependency on a single industry, future market saturation of wind turbines, substitution of other energy sources and to some extend the consequence of volatile oil prices.furthermoreifvestasengagedcooperationwithautilitycompanyandstartedselling theelectricitythemself,therelianceonasingleindustryandfewcustomerswillbefurther reduced. 79

80 6.Conclusion The main focus of this paper was to evaluate Vestas expansion possibilities. The strategyneededshouldaccomplishvariousgoalsandgiveanswertotheproblemsdefined; how Vestas maintain their position in the market? How to ensure future growth and revenue?andhowtoarchiveinternalgoals? Throughout our paper we have evaluated the different market environments, surroundings, competitors and Vestas themselves alongside with their operations. Our analysis of the environment showed that political support is currently necessary for the windindustry,butalsobenefitsthegovernmentintermsofjobcreation,productivityand economic growth. In relation to the market, the competition has become more and more fierce and Vestas position has been threatened. Vestas main advantage was defined as beingtheirtechnologicalskillsandexperience. Theactionrecommendedwasfurtherverticalintegration,bothinrelationtosuppliers ofcomponentsandforwardintegrationinrelationtogridandtransmission.investmentin biggerplants,improvesflexibilityandcrm,exploittheirtechnologicalstrengthsandsecure innovativebusinesspartners.thestrategywouldoverallbeadifferentiationstrategybased oncooperationandintegrationwithsmallerlocalcompanies,inwhichvestaswillbeableto deliveranentirepackagesolutionincludingthepowerinfrastructureandmorereliablecrm system. 80

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