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Vestas

  1. 1. A CASE STUDY ABOUT… WHERE THE WIND MEANS THE WORLD. STRATEGIC MANAGEMENT FINAL REPORT 152112130 Paulo Alves OCTOBER 2012
  2. 2. 2 INDEX 03 Company’s Overview 04 1. Industry Analysis 05 1.1. Environmental Analysis 06 1.1.1. Macro Environment 06 1.1.2. Micro Environment 06 1.1.2.1. Clients 07 1.1.2.2. Competitors 08 1.1.2.3. Suppliers 09 1.1.3. Industry Attractiveness 10 1.1.4. Industry Structure 11 1.2. Organizational Analysis 11 1.2.1. Resources 12 1.2.2. Access to Scale, Scope and Experience economies 13 1.2.3. Strengths and Core Competencies 13 1.2.4. Strategic Fit 14 1.2.5. new SWOT Analysis 15 2. Strategy Formulation 16 2.1. Vision, Mission, Values 16 2.2. Objectives 17 2.3. Strategy and Strategic Dimensions 18 2.4. Corporate Governance 19 2.5. Product-Markets 21 2.6. Vertical Integration 22 2.7. Internationalization 25 3. Recommendations 28 4. Appendixes 32 5. References
  3. 3. 3 COMPANY’S OVERVIEW VESTAS Vestas wind Systems S/A YEAR FOUNDED Founded in 1898 but become known as Vestas only in 1945 INDUSTRY Vestas sells wind turbines all over the world in the B2B segment. The company competes in the energy industry which offers a large range of energy opportunities to a large variety of costumers. HEADQUARTERS Aarhus, Denmark SALES VOLUME (MILLION EUR) 5,836 in 2011 MARKET SHARE 12% - Market leader followed by Sinovel CEO Ditlev Engel STOCKS Public Held on the NASDAQ OMX Copenhagen MARKET Sold in more than 30 countries into America, Europe and Asia Pacific. More than 50% of the revenues come from Europe. EMPLOYEES More than 22,000 employees
  4. 4. 1. INDUSTRY ANALYSIS 4
  5. 5. 5 1.1. ENVIRONMENTAL ANALYSIS 1.1.1. MACRO ANALYSIS PEST Indicator Forecast Causes 1. INDUSTRY ANALYSIS Impact on the Energy Industry Supply Demand Political Policies Improved macroeconomic policies. National Governs more transparent. More initiatives to leverage green thinking. Vaster and freer flow of information, capital, goods, services and people. + Easier components, products and services exportation Brand awareness increase + Potential for renewable sources of energy - Strait labor policies. Living Standards Political pressures for higher living standards. Greater social and ecological responsibility. Further countries becoming political democracies. - Higher production costs + New potential costumers/ consumers Economic Economies Growth The global economy is well positioned to accomplish a continuous period of growth. Economic crisis is expected to recur. Asia will keep the fastest growing region, led by China and India, whose economies already comprise approximately one-sixth of global GDP. USA are expected to avoid recession already in 2012. + New potential markets for energy companies. Asian market seems very attractive. + The economic growth increases the power purchase of the population mainly from merging economies. Inflation Disinflation is expected for the next few years in a global context. Although the changes will be minimal. In one hand, in the developed countries it was a measure imposed by the central banks. This result was achieved by injecting liquidity in the economy. On the other hand, in the developing countries it is result of the moderation in global commodity prices and lower global growth. + Cheaper components and raw materials + Disinflation expectations lead the costumer to delay the purchase. However, this impact is not expressive in the energy segment because the consumption is not really affected by this trend. Average Income Overall GDP per capita will increase. Forecasts tell developed countries will keep the higher numbers. Although merging economies are faced with an huge expectation for middle class increasing. Stagnant population growth in developed countries. Emerging economies will keep leading the economy growth worldwide. - Higher production costs + Increase on the need of supply and consumption from costumers. Consumption In general it will increase. Oil demand and natural gas demand will increase deeply It is result of a vaster increase of population mostly in Asia. Asia will drive the expansion in the energy demand. - Higher production costs + Rise of new consumers mainly emerging Asian middle class that want to acquire higher class behaviors and goods dependent from energy supply + Potential for the supply from renewable sources of energy Social Population Distribution By 2015 more than a half of the world's population will be urban. India, China and Japan will keep leading the population growth Population growth mostly seen in emerging and Asian economies. + Easier distribution network Shift of power consumption from developed countries to emerging economies Society Behaviors Increased Healthcare, Security and Time Management concern. People will tend to be attracted for simplicity and effective performance goods. Ageing Population. Healthy body and mind is becoming a new form of lifestyle. People search for comfortable and peaceful places. Global warming has caused people to think "green". Growing world complexity makes people search for simple and effective goods. Inflation, financial crisis and public/ private debt are leaving people much more alert about opportunity costs. - Higher production costs Consumers become more demanding and selective about quality of goods. Altough it doesn't affect directly the energy industry. + Potential for the growth of renewable sources of energy. Today already a great amount of investment also from government are being made to develop this technologies Relationships Multicultural environment growth everywhere. Companies tend to have a closer interaction with employees Easier flow of people through different countries. Greater social and ethic responsibility. + Higher standardization of textil trends which reduces the costs of country adaptation Consumer behaviors are more homogenius Technological Communication Easier communication trough more channels Huge investment on developing "social software" from a virtual network. + Cheaper and more effective channels + Increased globalization of brand awareness Distribution More, effective and advanced distribution channels People tend to be more sedentary. Better producing performance. + Cheaper and more effective channels Development Progress on several matters within logistics Resource scarcity. More information. Increased ecological responsibility. + Lower production costs due to more efficient technology + Potential for renewable sources development
  6. 6. 1.1.2. MICRO ANALYSIS 1. INDUSTRY ANALYSIS SEGMENTATION BY SOURCES (WHAT) SEGMENTATION BY SECTORS (WHO) 6 1.1.2.1. CLIENTS Energy clients can be seen from different perspectives. Below through a eight-criteria analysis it is shown a correct view of these clients and all the market segmentation options. C O S T U M E R S WHO Transportation companies, Industries, Residencies and Commercial businesses WHAT Energy from renewable or fossil sources FOR WHOM Worldwide population WHEN Everyday WHERE All over the world WHY Nowadays energy can be seen as a physiological need and this is because most of them depend on the existence of controlled energy. For example if a consumer needs to eat he also needs most of the times a source of energy to cook. HOW MUCH Energy prices differ from each company and country’s energy price policy. Regarding the goal of this report where the most important thing is to perceive the positioning of Vestas from its direct competitors and since the company is engaged with the business-to-business sector it would be more useful to segment the market by answering the criteria what and the criteria who. The two tables below show the different market segmentation for each criteria, which will be developed further more. PETROLEUM COAL RENEWABLES Hydroelectric Power Wind Power Solar Power Biomass Geothermal NATURAL GAS NUCLEAR ELECTRIC POWER TRANSPORTATION INDUSTRIAL RESIDENTIAL COMMERCIAL More detailed information about these segments is available on the industry attractiveness analysis. 2010 2030
  7. 7. RENEWABLE SOURCES 7 1.1.2.2. COMPETITORS 1. INDUSTRY ANALYSIS Overlooking an important competitive threat can be disastrous for the business. In this report it is possible to study the competition through four different levels to make sure no competitor is forgotten. This study is represented by the product-industry hierarchy and it can be seen on the picture below for the Vestas case. ENERGY INDUSTRY WIND POWER BRANDS INDUSTRY PRODUCT CLASS PRODUCT TYPE PRODUCT VARIANTS In all this levels it is possible to assume direct and indirect competitors for Vestas. Although for this report only competitors from the deepest level of this hierarchy will be developed. It means a product form competition, which includes services of the same product type. The table below shows who are this competitors and their specific framework. COMPETITORS SINOVEL GAMESA ENERCON GE ENERGY COUNTRY CHINA SPAIN GERMANY USA COMPETENCIES Entrepreneurship Price Expertise Diversification STRATEGY Long-term strategy of technological innovation, localization, scale production, international expansion and service integration. Become a benchmark in the wind power industry by offering the lowest cost of energy, while focusing on three vectors: Cost of Energy, growth and efficiency. Constant sophistication of existing components, providing customers with state-of-the-art products Invest on innovative technologies that help customers to meet their challenges in sustainable ways OBJECTIVES • Open the first integrated base for the manufacturing, assembly, testing, ocean transportation and ocean installation service for large-size offshore wind turbines; • Open the National Energy Offshore Wind Power Technology and Equipment R&D Center. • Optimization of the Cost of Energy, focusing on improving turbine availability and reliability; • Strengthening its presence in target markets and stepping up sales efforts among utilities in central and northern Europe and in markets in Southeast Asia, Australasia, South Africa and the Middle East. To do so, the company will leverage its presence in China, India and North Africa; • Optimize support functions to become more competitive. Export share of more than 60 % in 2013, gradually increasing over the years to come. • Sustain operating excellence and financial discipline • Create a more valuable portfolio of businesses • Drive organic revenue growth at 2 to 3 times gross domestic product • Retain an excellent team with a strong culture • Manage the company0s risk and reputation • Build an excellent investor base • Lead the board activities MARKET SHARE 9% 8% 7,8% 7,7%
  8. 8. 8 1.1.2.3. SUPPLIERS 1. INDUSTRY ANALYSIS There are a large amount of possible supply chains for each industry segment. Although it was taken the same approach as the one given in the competitors study. Only the wind power segment analysis is crucial and the one analyzed. Wind turbines have more than 8,000 components. Typically companies in the business engineer their own design and contract with a variety of suppliers to manufacture the components. In this terms, there are three ways to operate in this field and they are represented by the three boxes below. BUY ALL COMPONENTS PRODUCE THE KEY COMPONENTS AND OUTSOURCE THE REST PRODUCE ALL THE COMPONENTS The increasing size of business is creating complex challenges on the supply chain. Decisions are crucial and companies have to ensure the best effectiveness depending on their value proposition. In one hand companies can prefer to avoid bottlenecks by controlling all the components’ production but, on the other hand, they can prefer to focus on their core competencies by outsourcing them. The following graphic gives the possibility to have an overview in the standard of these supply chains. COMPANY TIER 1 SUPPLIERS Suppliers of large components such as towers, blades, gearboxes and so on TIER 2 SUPPLIERS Suppliers of ladders, fiberglass, resin, machined parts, motors, electrical parts and so on. In the case of Vestas only the tier 2 suppliers of the graphic (tier 1 for them) are applied to the company’s strategy. They keep domestic the production of the key components and avoid bottlenecks by having a supplier management team internally and always two suppliers for each component. Nowadays they have approximately 1,000 suppliers all over the world. The p i c t u r e on the r i g h t side shows t h e i r strategic positioning. Strategic because Vestas try to have all of their suppliers as close as possible of their production factories. • F a c t o r i e s • S u p p l i e r s
  9. 9. SEGMENTATION BY SOURCES OF ENERGY 1. INDUSTRY ANALYSIS The petroleum energy source is the market segment with more attractiveness. However it is a very risky segment not only because the market is dominated by four big companies but also because the initial investments are huge. This is also a very controlled market but since it is the major source of energy, the players profitability’s margins are great. In the case of Vestas, they are included in the wind power segment since they produce and sell wind turbines. This segment is considered unpenetrated and the forecast growth is promising. However this kind of energy have huge fixed costs and to make it a competitive source of energy the profitability’s margins are lower when compared to other segments. In terms of risk, in one hand it is low because of the promising changes in consumer behavior and the increasing political initiatives but, on the other hand, it is high because of the high risk of being substituted by other renewable sources of energy. SEGMENTATION BY SECTORS 9 1.1.3. INDUSTRY ATTRACTIVENESS The tables below show the attractiveness of each segment in the Energy Industry. It was made two different tables depending on the segmentation criteria. PETROLEUM COAL RENEWABLES NATURAL GAS NUCLEAR ENERGY HYDROELECTRIC WIND SOLAR BIOMASS VALUE (BILLION $) 616 991,183 48 003,263 7 511,869 2 768,071 49,767 15 130,144 192 554,353 4 523,493 GROWTH (2011-2035) 0,13% 0,17% -0,02% 2,28% 16,78% 3,48% 0,35% 0,52% MARGIN 80% 70% 40% 40% 30% 50% 70% 40% RISK 100% 83% 67% 47% 33% 50% 83% 87% ATTRACTIVENESS (BILLION $) 508 921,984 42 007,169 4 480,948 4 072,658 1 854,424 34 355,630 175 819,411 2 366,431 TRANSPORTATION INDUSTRIAL RESIDENTIAL COMMERCIAL VALUE (BILLION $) 5 693 100 2 860 704 2 600 640 1 822 480 GROWTH (2011-2035) 0,26% 0,54% 0,15% 0,72% MARGIN 80% 70% 80% 70% RISK 77% 50% 67% 75% ATTRACTIVENESS (BILLION $) 6 319 013,910 4 562 039,841 3 233 714,400 2 020 216,723 Vestas sells its turbines not to the final costumer but to costumers who work as energy suppliers. This costumer is included in the industrial segment of the table. An attractive segment with an interesting forecast growth and a value that can be explored on the future since it has great profitability margins and a medium risk. Medium risk mostly because of the necessary expensive infrastructures to provide efficiently the energy.
  10. 10. 10 1.1.4. INDUSTRY STRUCTURE It does not matter the segmentation criteria, the energy industry is very concentrated and matured. It is possible to find key players for each segment and the growth in average is low. Only the solar energy power from the sources segmentation is positioned for growth in the future. The right side graph provides a picture of how concentrated is the industry in the wind power segment. 1. INDUSTRY ANALYSIS MARKET SHARE IN 2011 FOR THE WIND vestas sinovel goldwind gamesa enercon Ge energy others 12% 9% 9% 8% 8% 8% 46% SEGMENT 1.2.5. KEY SUCCESS FACTORS Key Buying factors Competition Factors Key Success Factors Wind Power Segment Efficiency Production Costs Efficiency Coverage Distribution network Production Costs Credibility Suppliers network Coverage Price Promotion Distribution network Key Buying factors Competition Factors Key Success Factors Industrial Segment Efficiency Production Costs Efficiency Coverage Distribution network Production Costs Credibility Suppliers network Coverage Price Promotion Distribution network To analyze the previews tables it is important to remember that it was possible to give the same key success factors to both segments because they result from different segmentation variables, each one analyzed independently. In other words it means that to be successful in the wind energy segment or in the energy sale to industries the key factors that will leverage the companies are the same.
  11. 11. 11 1.2. ORGANIZATIONAL ANALYSIS 1.2.1. RESOURCES Human 22,721 employees over 37 different countries in the end of 2011 By Region Americas 3,493 Europe and Africa 14,118 Asia Pacific 5,110 By task Production Units 11,000 Sales Units 7,681 R&D 2,037 Others 2,003 HR Policies Diversity The major goal is to attract and retain skilled and committed employees. Regardless of nationality and gender. Safety Vestas provide a continuous training under the program "Safety Walks". The group is very committed to reduce the number of labor accidents. Rights Vestas as global policies concerning to human rights, freedom of association and the right to collective bargaining. FINANCIAL 2011 Revenues (M€) 5 836 Notes EBIT (M€) -60 Mostly because of the decrease on revenues Net Income (M€) -166 Net Working Capital (M€) -71 Equity (M€) 2 576 Total Assest (M€) 7 689 An increase of 9% comparing to 2010 result of the investments in more infrastructures 2012 Dividends per share (€) 0,00 Share Price (€) 4,16 Oct 26 Market Capitalization (M€) 847 Oct 26 ORGANIZATIONAL Functional business Structure Public held on the NASDAQ OMX Copenhagen Headquarters in Denmark All over the world 47 335 Turbines 28 Production factories 38 retail stores and after sale service 9 research centers More than 1,000 suppliers Three different committees to prepare decisions and recommendations for evaluation and approval by the entire Board of Directors. The audit Committee The Nomination & Compensation Committee The Technology & Manufacturing Committee 1. INDUSTRY ANALYSIS
  12. 12. 1. INDUSTRY ANALYSIS 1.2.2. ACCESS TO SCALE, SCOPE AND EXPERIENCE ECONOMIES ECONOMIES OF SCALE Vestas achieve economies of scale by producing more and more powerful wind turbines, in better locations and more efficient. How? 1st: By giving a great effort in R&D to manufacture more and more powerful turbines and more efficient distribution channels. 2nd: By investing in research to find the locations with the best characteristics for the turbines performance. Why? Because if they do this they will have to spend the same amount of capital to build wind turbines but as result they produce more energy since they have better strategic locations, more powerful turbines, and less energy losses, which will sell for higher prices for sure. SCOPE ECONOMIES The good news about the manufacture of wind turbines is that some components and resources can be used through all of the product lines even when updates are done on the technology. For example the tower infrastructure is always made of the same components and raw materials or the team that build the wind farms are always the same no matter the wind turbine line. It means Vestas achieve Scope economies by sharing synergies and resources between the different product lines. EXPERIENCE ECONOMIES 12 It is easy to perceive that Vestas can easily achieve experience economies. They work always on the same market segment with almost the same products so it is easy to learn from past situations. … to improve this matter, Vestas provide three different opportunities for career development: However... Professional Vestas always provide the necessary practical skills. Technical Vestas promote continuous training for the latest technologies, either in workshops, classrooms or on the factory floor. Leadership Vestas supports their high potential candidate with leadership transition programs
  13. 13. 1.2.3. STRENGTHS AND CORE COMPETENCIES 13 STRENGTHS REASON 1. INDUSTRY ANALYSIS CORE COMPETENCIES VALUE CREATION FOR THE CLIENTS DIFFICULTY TO IMITATE BY COMPETITORS ACCESS TO NEW MARKETS STRONG BRAND • Recognized as the parents of the wind power technology; • Seen as market drivers. x x x STRONG MARKET SHARE • Market leader in the wind power segment with 12% market share in 2011. - x - UNIQUE KNOW HOW • Vestas has a long experience in the field. • Joined the market segment in the 70s • They have learned how to leverage their core competences and improve their efficiency. x x x EFFICIENT LOGISTICS • Strategy focus on cost of energy production, reliability, R&D and technology. • Huge and complex supply chain with a policy of 2 suppliers for each component. • Promotion of the "easy to work with" policy that searches for simplicity on their manufacturing process • Implementation of local production for local markets strategy. x x x FOCUS ON COSTUMER • Annual surveys to understand how satisfied are its costumers. • Costumers are positioned as the business focus. x - x FOCUS ON QUALITY • Promotion a six sigma approach to measure the quality in the manufacturing process. x - - TRANSPARENCY APOLOGISTS • Promotion of a transparent marketing policy. • Launches of a range of initiatives that increase transparency on both consumers’ and companies’ side such as the launch in 2010 of the Global Consumer Wind Study. x - x To be considered a Core Competency, the strength must fulfill all the three characteristics above 1.2.4. STRATEGIC FIT VESTAS WIND POWER AND INDUSTRIAL SEGMENTS Core Competencies Key Success Factors Efficiency Production Costs Coverage Distribution Network Strong Brand - - 5 - Unique Know How 5 5 3 4 Efficient Logistics 5 3 4 5 Average (1-5) 5 4 4 4,5 From the previous table it is perceptible that Vestas fits the market perfectly in terms of efficiency. It was only possible because of the large and unique know how that the company affords and all the complex and efficient logistics’ strategy. Overall the numbers are close to the maximum but there still some potential to optimize the production costs, the company’s worldwide coverage and the distribution network. For this the company has three options: invest, create and develop new core competencies (a complex and difficult process); invest in the present ones or come up with a partnership where they could share them.
  14. 14. 14 1.2.5. NEW SWOT ANALYZES IMPROVED MACROECONOMIC POLICIES. • Growth in the wind sector is the first and foremost driven by political initiatives (climate laws as well as international agreements to meet certain green energy); • Vestas shall take this opportunity to leverage its strengths and develop its core business. INCREASING OIL AND NATURAL GAS DEMAND • This issue allows Vestas to promote its source of energy. The increasing demand is related with the increasing living standards. People does not consume oil and natural gas because they like it but because they need. Promoting Vestas strengths is a great opportunity to growth. BRIC’S RISE • Vestas as the opportunity to growth in new or markets where it is not so visible. • The company is allowed to decrease the impact or actually delete some of its weaknesses. Such as small market share in high growth markets. INCREASED HEALTHCARE, SECURITY AND TIME MANAGEMENT. • Growing concerns about climate change and energy supply; • Strong levels of public acceptance for renewable sources of energy; • Once again Vestas has here the opportunity to decrease its weaknesses such as the negative results and the dependence on subsidy schemes. HALF OF THE POPULATION WILL BE URBAN • Vestas has the opportunity to optimize its logistics performance and effectiveness. • Less channels will be necessary to provide energy for the same amount of costumers. PROGRESS ON SEVERAL MATTERS WITHIN LOGISTICS • It will be necessary less investments in R&D • Dependence on suppliers will also decrease because this opportunity allows the company to improve its logistics strength , capacity and the focus on quality. 1. INDUSTRY ANALYSIS
  15. 15. 2. STRATEGY FORMULATION 15
  16. 16. 16 2.1. VISION, MISSION AND VALUES 2. STRATEGY FORMULATION COMMENT VISION Wind, oil and gas Renewable energy sources are becoming more important. Millions of people recognize it as the key solution for a sustainable economic growth in the future. Vestas has this vision, the vision that wind will be as important as fossil sources of energy, in particular, oil and gas. MISSION "Failure is not an option" The mission gives a plain idea of the commitment in the business. Although it does not give any information about the business, the costumers, and the value proposition. One outsider could not make a decision or perceive the goal of Vestas without special information. VALUES Reliability Common Sense Trustworthiness This three values are the cornerstone of all Vestas’ activities. Vestas believe in a culture where initiatives, collaboration and responsibility are the keys for the business success. 2.2. OBJECTIVES Financial Objectives Short Term (2012) • Achieve an EBIT margin between 0 and 4%; • Revenue between EUR 6,500-8,000 millions; • Achieve warranty provisions about 3% of the expected full-year revenue; • Achieve shipments of 6.3GW; • Drive EUR450 millions in new investments; • Reduce fixed costs by more than EUR 250 millions. Long Term • Get benefit from their scale and develop a more competitive cost structure; Achieve a high single-digit EBIT margin in the medium term, subject to a normalized US market; • Finance its own growth; • Increase its market share; • Increase the service business, which is more profitable than the sale of turbines. Non-Financial Objectives Short Term • Launch of new platforms such as the V164-7.0 MW turbine; • Remain self-sufficient in blades production; • Reduce industrial to no more than 3 per 1 million working hours in 2012; • Securing outstanding performance levels for all wind turbines through six sigma philosophy Long Term • World class within safety, quality and delivery precision; • Secure World Class procurement; • Expand global capacity on critical components; • Establish a global supply base; • Reduce industrial to no more than 0.5 per 1 million working hours until 2015; • Achieve a carbon footprint of 6 grams of CO2 per kWh until 2015; Vestas has its objectives very well scheduled. However it is impossible to have specific information for how are they going to do it. Perhaps by developing its core competencies and driving investments on new technology (It is possible to better understand how they are going to achieve this objectives with the next subject, Strategy and Strategic Dimensions). It is also important to inform that they restructured the organization and kept on investing in R&D even with the negative results from the last year. This means the company is very committed to develop itself to the maximum before thinking about going in other ways like a future partnership with other components or energy supplier. It is a reality mostly because despite the bad results they still the market leaders.
  17. 17. 2. STRATEGY FORMULATION 2.3. STRATEGY AND STRATEGIC DIMENSIONS Vestas’ strategy can be summarized in three programs: “The willpower”, “No. 1 in modern energy” and more recently “Wind it means the world to us”. Despite the top two are not anymore the main focus of the company it stills possible to perceive some strategies that are based on its values. The table below shows which are this business and corporate strategies and how they fit on the company’s dimension. STRATEGY STRATEGIC DIMENSION DEVELOPMENT 1. Develop its aftermarket services in terms of company’s share, response and quality. Product-markets Internal Development 2. Increase economies of scale Vertical Integration Internal Development 3. Take advantage of the industry supply chain Vertical Integration 17 External Development Strategic Alliances 4. Deliver solutions and product upgrades faster and with lower risk. Product-markets Internal Development 5. Drive the market with core technologies Product-markets Internal Development 6. Develop a leading offshore platform, V164 Product-markets Internal Development 7. Focus its business on wind advantages: financially competitive, predictable, independent, clean and fast. Product-markets Internal Development Keep up with this strategies together with the last organizational restructure allows the Vestas’ path to be a big sustainable profitability promise. Vestas wants to reborn from the last year results as fast as possible. They have huge responsibilities to its employees but also to the market. They just can not afford one more year as 2011. The Vestas strategy works mostly in two dimensions: the product-markets and the vertical integration. This means the company knows or believes that by improving this two dimensions it will be possible to control the market and consolidate its position as the world’s leading manufacturer of wind power solutions. PRODUCTS-MARKETS VERTICAL INTEGRATION INTERNATIONALIZATION INTERNAL DEVELOPMENT Vestas offers a range of products that reach out to each customer needs. Its portfolio follow three different features: capacity, conditions and requirements they are supposed to work in. Vestas also offers a range of services connected to planning, transport, construction, operation and service to power optimization. Vestas has a range number of suppliers. Nowadays it accounts for more than 1,000 thousand. Mostly because of the two suppliers for each component policy. However the company keeps internally the production of key components such as blades and generators. Vestas is present in more than 70 countries with its technology. They also have factories, sale stores, and research centers all over the world. However most of them are in the European market.
  18. 18. 2. STRATEGY FORMULATION PRODUCTS-MARKETS VERTICAL INTEGRATION INTERNATIONALIZATION 18 EXTERNAL DEVELOPMENT Strategic alliances Vestas has some partnerships mostly for research and transportation. Such as Boeing, MIT, Bristol, Aalborg, Tsinghua, IIT Chennai and NTU Vestas has some and want to develop long term contracts with suppliers for components such as ladders, motors, electrical parts and so on. It does not fit with the company’s strategy. Mergers & Acquisitions In 2004 Vestas merged with NEG Micon A/S , another Danish wind turbine manufacture. It was an important step for the portfolio development. The merge with NEG Micon A/S allowed Vestas to share resources and synergies between companies. This move was important become a more efficient company in terms of logistics. NEG Micon A/S was represented all over the world with its turbines. This means that acquisition by Vestas allowed the company to penetrate in foreign markets. No more merges/acquisitions are programmed by Vestas however Sinovel and Goodwill are planning to make a bet to the company. This acquisition would have impact in the three dimensions such as NEG Micon A/S had in 2004. Transactions Market Not suitable with the company’s strategy. Moreover the company plans to decrease its dependence on suppliers by increasing the internal production. 2.4. CORPORATE GOVERNANCE Vestas is a limited liability company with two-tier management systems: the board of directors and the management team. The management team is responsible for presenting proposals for the overall company’s objective, strategies and action plans as well as proposals for the overall operating, investment, financing and liquidity budgets to the board of directors. The management team also has the support of three board committees at Vestas: THE AUDIT COMMITTEE THE NOMINATION & COMPENSATION COMMITTEE THE TECHNOLOGY & MANUFACTURING COMMITTEE The main goal of this committee is to assist the board of directors in relation to internal and external control of financing, financial goals and group’s risks. This committee is responsible to assist the board in matters and decisions concerning earnings and remuneration. It assists the board in assessing technological issues, IPR strategy, product development plans, and production.
  19. 19. 19 2.5. PRODUCT-MARKETS MARKET SEGMENTS Wind power Industrial sale PRODUCT LINES Oil Barrels Coal Bags Solar Panels Wind Turbines Dams Biofuel Wood Waste Tanks of Gas Nuclear reactors 2. STRATEGY FORMULATION The aside table represent all the energy industry product lines. As we can see Vestas covers only one product line in each of its segment. The sale of Wind turbines. All the other segments have no potential for the company because at the moment it is not the focus of the business and also because they do not meet the r e s o u r c e s a n d c o r e c o m p e t e n c i e s necessary to join the lines. Inside the wind turbines’ product line it is also possible to meet a range on p r o d u c t s t h a t a r e differentiated by the capacity, as shown in the table below. MARKET SEGMENTS Wind power Industrial sale PRODUCT LINES 850 KW 1.5 MW 1.8 MW 2 MW 2.3 MW 2.5 MW 2.6 MW 3 MW 4.5 MW 6 MW 3 MW offshore 5 MW offshore 8MW offshore Vestas offers the large range of turbines in the market. Despite the trend is to develop more powerful turbines with large capacity, Vestas still with some potential in the current product line. This is the case of the 850KW capacity turbines that can be very useful in special location conditions and the 6MW turbine since it is the current most powerful turbine in the market without counting with offshore turbines. However Vestas covers with its product line a l l t h e s e g m e n t s i n t e r m s o f n a t u r a l conditions. It is possible to see this fact on the table below. TURBINE WIND CLASS High Wind Medium Wind Low Wind 1.8 MW X X 2MW X 2.6 MW X X 3.0 MW X X X 3.0 MW offshore X X 8 MW offshore X X To reach these different wind classes, the company also has different models in terms of potency (V80, V90, V100, V112, V126 and V164).
  20. 20. 2. STRATEGY FORMULATION Vestas focus its business on the energy industry as already have been said. They have a complementary product line in terms of potency, capacity and natural conditions through an unbunding strategy (since it is necessary to pay for each turbine). SOURCE OF ENERGY SEGMENTATION: WIND POWER 20 PRODUCT Present New MARKET Present Market Penetration Product Extension New Through the Ansoff model in the right side it is perceptible that Vestas uses a market penetration and extension in terms of evolution of the product-markets matrix. By developing its product lines Vestas desire is to consolidate/gain market share and increase the wind energy usage but also to increase its portfolio that is already the larger in the market and drive the trends by creating new products. In the next graphs it is possible to understand how strong is its competitive advantage in the wind energy market. PRODUCTION COSTS Low High EFFICIENCY High Low DISTRIBUTION NETWORK Low High COVERAGE High Low END OF USE SEGMENTATION: INDUSTRIAL PRODUCTION COSTS Low High EFFICIENCY High Low PRODUCTION COSTS Low High EFFICIENCY High Low Once again it is necessary to remember the energy industry is very concentrated even in the wind energy segment. Consequently it has a great impact for the companies positioning because it is easy to have information about all of them and their strategies. This makes the company to have in several situations problems has the prisoner dilemma from the games theory because the companies sometimes can not make moves because other companies can get more profitable from that or if they do so they will be followed by the rest of the competition. This is the main reason for the perceptual maps do not be so differentiated. Although Vestas has a dominant competitive advantage in both segments. They are market leaders, they have the large product line, the largest coverage, the better efficiency policy, they drive the market with technology and know how, but they also have huge production costs as it is usual in this segment. However it is a more a threat for the company when watching the full picture of competitors because we can not forget energy companies from other sources of energy since at the end they all produce the same final product/service.
  21. 21. 2. STRATEGY FORMULATION SOURCE OF ENERGY SEGMENTATION: WIND POWER END OF USE SEGMENTATION: INDUSTRIAL Grow with the industry Grow with the industry 21 In terms of differentiation, Vestas products are associated to a symbolic and technical differentiation. In one hand they are aware its costumers associate the company has the market leader and because of this positioning its products will be always an option. They are also associated to be market drivers with its technology and new turbines, once again this is a reason that confirms the symbolic differentiation of the company. On the other hand, they know its costumers give a huge importance to quality and efficiency and that is why they have to assume a technical differentiation to become competitive in the market. LEVEL OF CONFIDENCE Low High RISK PERCEPTION High Symbolic Differentiation Technical Differentiation Low On the tables below, to sum up all this information it is possible to understand what is the future of Vestas strategy. PRODUCT LIFE-CYCLE COMPETITIVE ADVANTAGE Introduction Growth Maturity Decline Dominant Strong Favorable Sustainable Weak PRODUCT LIFE-CYCLE COMPETITIVE ADVANTAGE Introduction Growth Maturity Decline Dominant Strong Favorable Sustainable Weak The graph on the right side illustrates all this activities and it also add the information about how much vertical is each Vestas activity. The blue color means the internal part and the white the percentage of outsourcing. As we can see Vestas has something to work in all the operational activities and it means that the company does not have any quasi-vertical integration. In the next table it is possible to have more detailed information about each activity. Forward Integration Backward Integration Production Design Human Resources management Financing Retail Stores Product Transportation After sales service Raw Materials production IT services Promotion Storage 2.6. VERTICAL INTEGRATION R&D
  22. 22. 2. STRATEGY FORMULATION Transportation X They choose the channels but they have to make long term contracts with outside companies to make the transportation. After Sales 22 INTERNALLY MANAGED PARTIAL VERTICAL INTEGRATION QUASI VERTICAL INTEGRATION COMMENTS BACKWARD Activities Design X All the design is done by Vestas design department Financing X Vestas receives some political incentives but they also finance themselves near bank when it is necessary. Raw Materials production X In this case components supply. Vestas has more than 1,000 suppliers. Although they also produce the key components for the turbines. Human Resources Management X Vestas has their own human resources department to manage all the employees and also make all the recruitment processes. The company also has an internal academy to provide future employees with all the necessary knowledge of the sector. R&D X Vestas has its own research centers however they keep some partnership with outside organizations such as MIT. IT services X Vestas has its own IT services and they are developed in their research centers worldwide. PRODUCTION X Vestas keeps internal the turbines assembling FORWARD ACTIVITIES Retail Stores X Vestas has its own sale stores all over the world. It is the only way to buy its products. Product service X After sales service is provided by the company Storage X The storage is also made in Vestas infrastructures. Promotion X All the promotion is done by internal employees which define and do all the promotion processes. 2.7. INTERNATIONALIZATION Nowadays Vestas is represented worldwide through its wind farms, production facilities, sale services and research centers. Represented in more than 70 countries, Vestas aims to go further. At this point it is important to understand why, how and where they apply this strategy. INTERNATIONALIZATION GOALS Decrease Risk Vestas seeks to decrease its market risk by exploring and joining new markets where natural conditions are favorable and unserved by the business Increase Sales Through Internationalization Vestas expects to growth and increase its value by attracting new costumers. Decrease Costs Internationalization also means increase economies of scale for Vestas and that is why they have production factories all over the world. They look for special locations where it is possible to reduce the production fixed costs. For example the production factory in China where for sure the company as less costs with the human resources than one of the factories in denmark. Increase Synergies By going in new places Vestas also look to attract some special resources such as know how. For example the research center in Boston that is combined with the MIT partnership
  23. 23. 23 INTERNATIONALIZATION CRITERIA REASON Atractiveness 2. STRATEGY FORMULATION Value The Company is motivated to internationalize mostly to reach more costumers and obtain more Growth growth. Margin It is important to the company internationalize for countries where they can have less production costs. However it is not a determinant factor. Because the main goal is to sale more and reach new costumers. Risk When internationalizing Vestas looks to decrease its risk. They strategically choose locations also with the best natural conditions and by having a worldwide coverage they can manage its production because natural condtions are not the same everywhere. Strategic Fit Efficiency By internationalizing Vestas as it was said looks for special synergies and this happens because they seek to improve its products and service efficiency Coverage Also internationalize will fit better the key success factors of the industry. So if they want to be successfull they have to internationalize Production Costs Despite Vestas take advantage of the production costs in each country where it is represented, it is Distribution not the main goal to go further. The same happens with the distribution network. Network INTERNATIONALIZATION OPTIONS Direct Investment • Direct investments are the main strategy in use by Vestas. They strategically find the place that fulfills their criteria and they reach there with their own money. • They invest in communication channels, they export some of their resources and start contracts with suppliers to build infrastructures and supply future needs such as components. Transactions • Entrance in foreign countries through license agreements with third parties to produce. Such as political agreements and initiatives. CONDITIONS Natural favorable Places where the wind conditions are favorable for the technology's development Underserved demand Places where the demand stills underserved High GDP Places with a large industrial sectors and consumption ratios This three conditions are not always suitable and that is why they have a range of products that cover all the wind classes and fields. In the appendix 2 it is possible to take a view in a table with the places where they already are, fruit of this three factors combination.
  24. 24. 2. STRATEGY FORMULATION ADAPTATION AND STANDARDIZATION FACTORS CULTURE/ HABITS DESIGN/TASTE LANGUAGE SIZE/PACKAGE TECHNICAL SYSTEM INTERNATIONAL INTEGRATION 24 CLIENT/ APPLICATION Concept Marketing Technology Product As we can see through the Green boxes, Vestas has to adapt some issues of its business to join new countries. This adaptation are mostly in marketing issue because each country has its own culture and behavior. It is important to suit the marketing strategy with this reality because it is the major way to attract potential costumers. It is also necessary to adapt the size/package of the product because each country has its own resources and needs. This issue is well covered by Vestas because they have a large range of product lines. LOCAL ADAPTATION Low High GLOBAL INTEGRATION High Global Company Low Vestas is considered a Global Company. They have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. There is low adaptation as it was already said before and decisions come always from the headoffice in Denmark.
  25. 25. 25
  • GrantDilworth1

    Nov. 8, 2018
  • Tonester

    Mar. 22, 2016
  • cslproudmore

    May. 17, 2015

This presentation was a take home exame aimed to analyze the market and several strategic issues on Vestas

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