Suzlon Energy Case from a Strategic Point of View

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Table of Contents

Introduction
The Wind Energy Industry
Suzlon Venture into Solar Energy
Conclusion
References

Introduction

The last three decades have seen an increased need for renewable sources of energy. World leaders, researchers, and policymakers among other elites have intensified the awareness of mitigating climate change. This phenomenon is attributed to using fossil fuels, which contribute largely to the greenhouse gas emissions.

Wind energy has become a better option, which the Suzlon Group has ventured in since 1995. Tulsi Tanti, who realised the potential of two wind turbines in power generation, founded the company. Since then, it has continually posted a growth trend as it has reached global scale with its subsidiaries in 21 countries.

This paper seeks to analyze the Suzlon Energy case from a strategic perspective with a focus on the macro-environment issues affecting the industry, microenvironment, and supporting issues surrounding the company’s operations.

The Wind Energy Industry

Wind energy has become the best option and a vital player in the world’s energy markets. It has rapidly grown to become an international business going beyond its original regions of the United States, India, and Europe (Shukla & Chaturvedin 2013). The Global Wind Energy Council (GWEC) 2011 report indicates that global installed wind power capacity by the end of 2011 reached over 237,600 MW (Lee 2014).

Regional output in Africa and Middle East is approximately 1,090MW, Asia 8200MW, Europe 9600MW, Latin America and Caribbean 2,300MW, and North America 52,750MW. The Pacific Region exceeded the 2,800MW mark (Sivaraman & Agarwal 2012; Pradhan 2008). As the world intensifies the campaign for the awareness of climate change and increased affirmative action, the global energy players continue to seek clean energy options including wind, hydro, and geothermal energy (Zhang et al. 2014).

Wind energy industry is driven by several factors namely the need to mitigate climate change, combating global warming, long-term carbon exposure, fuel risks, escalating depletion of fossil fuels, the need for energy security, and increased demand for clean energy (Shukla & Chaturvedin 2013). The modern advancement in energy technology underpins the large-scale production of wind power.

For this reason, the industry has seen an influx of players who compete for ready demand for energy. The industry grows at an annual rate of over 20% (Khan et al. 2012). It employs more than 5.5 lakh people worldwide with a 2012 annual turnover of more than 49 billion pounds (Zhang et al. 2014).

The impact of wind-generated electricity continues to be felt by over 26 million global households (Khan et al. 2012). Wind energy is the second largest source of electricity as it is capable of generating over 500 terawatt hours yearly. This amount accounts for approximately 3% of the world electricity consumption.

Changes and Opportunities facing the Wind Energy Industry and their strategic Implications

The projected energy emissions of the greenhouse gases have been said to reach 10% increment by 2050 in the absence of robust new energy policies. This projection brings in the need for adopting clean energy alternatives such as wind energy in a bid to counter the adverse effects that the greenhouse phenomenon causes (Zhang et al. 2014).

The wind energy industry has seen numerous changes and opportunities that have influenced it greatly (Pradhan 2008). Changes include technological advancement, proactive supply chains, and political interest in the push for renewable clean energy entrepreneurship (Lewis 2014).

Opportunities for wind energy industry include increased demand for energy and offshore installations that remain an untapped opportunity (Upadhyay 2014). Macro-environment issues affecting the industry entail social acceptance of infrastructure, system integration, energy market structures, and reliability of transmission (Lewis 2014).

Suzlon Core Competencies and Strategic Resources Compared to Competitors

Suzlon’s operations are entirely integrated with a focus on designing, engineering, and development of WTGs (Ashuri et al. 2014). The company’s supply chain is fully integrated with manufacturing facilities spread throughout three continents. Suzlon has managed to gain a competitive advantage with better control over time, cost, quality, long-term customer service and support, and integration of turbine technology.

This integration enables the company to design and manufacture different vital components of wind turbine generators (WTGs) such as rotor blades, tubular towers, control panels, and nacelle in-house. The wind energy industry’s supply chain faces stiff challenges of a long production lead-time for crucial components such as bearings, gearboxes, and forged components.

Due to its strong technological capabilities, Suzlon’s supply chain counters these bottlenecks leading it to attain a competitive position over other players (Pradhan 2008). For instance, the manufacture of tubular towers is done by the 75% owned subsidiary company, the Suzlon Structures, whilst Suzlon Energy Limited manufactures WTGs.

Suzlon Windfarms Services (SWSL), which is a wholly owned subsidiary of the Suzlon Energy, offers various after-sale services, (Ashuri et al. 2014). One of the associate companies does the company’s procurement of sites in India.

According to Ashuri et al. (2014), the vertically integrated supply chain embraces cost effective business strategies with a view of promoting the achievement of the company goals. In this regard, the company has significantly increased its manufacturing capacity of all turbine components with the construction of new facilities continually ongoing.

End-to-End Solutions Provider and Strategic Global Presence

The company enjoys its diverse wind power knowledge base that underpins its energy interventions (Bana 2012). It combines proven technology and unlimited value added services to the global customer that has earned the company a reputable loyalty. It utilises a robust integrated business model to realise all its goals ranging from procuring sites, equipment supply, and life-cycle operations to project maintenance.

This business model relieves the customers of the extra workforce for their projects. This end-to-end paradigm has made setting up of wind energy projects simple and hassle-free (Bana 2012; Pradhan 2008). Additionally, it has enabled numerous customers ranging from small and medium to multinational corporations to set up their own wind energy projects easily and with confidence (Rai & Funkhouser 2015).

The company is currently present in 25 countries and five continents including offshore and emerging economies. Suzlon is the dominant provider of wind energy in India with a market share of more than 50% where it provides customers with both the land and the infrastructure.

The land bank of premium sites procured and owned by Suzlon is a strong competitive advantage as it serves as a crucial barrier to entry by other competing companies (Rai & Funkhouser 2015). The company is a leading wind energy provider in Brazil with a 50% market share. With its premium quality products, Suzlon has ventured in China, which is an important emerging market.

The company will compete with dominant Chinese wind companies present in the country by offering high quality and low priced products. Suzlon’s geographical presence in over 21 countries where it utilises different workforce gives it a competitive advantage too. It also covers a comprehensive product portfolio that is reliable and competitively priced (Pradhan 2008).

Suzlon Venture into Solar Energy

For more than a decade now, the Suzlon Group has been the market leader in its wind energy segment in India (Pradhan 2008). However, the company has faced a pitfall in recent years following product quality issues and subsequent financial crises. As a result, the company suffered a liquidity freeze that contributed to the defaulted repayments.

To settle this mess, the company undertook two major strategic decisions. Firstly, it struck a deal to recapitalise the balance sheet through the issuance of new shares to Dilip Shanghvi and Associates (DSA). This move brought in fresh equity of INR18 billion (Pradhan 2008).

Secondly, Suzlon sealed a deal to sell its 100% stake in German wind equipment maker Senvion bought back in 2008. This sale brought in close to €1 billion for the company (Jin, Rong, & Zhong 2014). These two moves brought around ~INR90 billion for the company to reduce the company’s INR170 billion debts.

Suzlon is on a mission of solving the problem of corporate debt restructuring (CDR) that has forced to sell its most attractive business of Senvion. Furthermore, its domestic working capital facilities are frozen that has made the company miss sourcing and executing new orders from its key domestic markets.

After the 2008 financial meltdown, the government of India withdrew its incentives for wind power installations in 2012. According to Pradhan (2008), this coincidence made plunged the company into a huge debt (USD209million) as it defaulted to repay its FCCB that year.

This situation left the company frustrated as it did not have the permission to use cash reserves of Senvion settle the domestic debt of INR170 billion. However, the company managed to work on robust strategies to settle its liquidity and debt repayments. This strategy has focused more on the debts the company’s operations. In this regard, it has reorganised the FCCB worth USD576mn and its domestic debt of INR95bn, with the conversion of part of its domestic debt into equity in FY15.

Pradhan (2008) reveals that the company has focused on the Indian market in the short-run rather than global markets. Given the abovementioned financial dilemmas facing the company, it is inevitable that the company is unprepared to undertake any strategic business shift to a brand new venture.

In fact, new wind power installations have been shown to be a slowdown since the 2008 financial crisis. Suzlon can only dream of taking up solar energy project, but the feasibility of undertaking it is doomed. The company lacks the financial capability to meet its debts.

Suzlon can only play the role of an EPC and O$M since it cannot financially support the manufacture any solar equipment in the short term. The company can rent wind sites from the existing customers to facilitate installation of solar panels at the same sites, thereby, a move that can provide a vital synergy in terms of O$M cost, grid infrastructure, and land.

Strategic Alignment Framework (SAF) Model and Recommendations

Suzlon has successfully utilised its integrated supply chain, robust strategies, and backward integration process. Given the huge debt created through acquisitions, the company ought to adopt other strategies to leverage its financial situation. This section presents numerous recommendations using the SAF Model.

Joint Ventures

Suzlon can strike important deals through various joint ventures with interested competitors to boost its order flow given that the company boasts of an extensive customer base in both India and other key markets around the world. The financial dilemma can be resolved through mergers. The chosen joint venture can add value to the Suzlon Group since it can boost the flow of orders.

Additionally, it can help strengthen the market share for Suzlon, which had been declining since the global financial crisis. Customers will choose an end-to-end solutions provider and prefer projects from Suzlon given the availability of its ready inventory to the competitors who can take a lengthy period to of up to 6-18 months to deliver service.

The joint venture can also help Suzlon regain its market share that went up to 50% in India and Brazil. The company boasts of strong execution record of accomplishment and complete EPC and OMS offering. These achievements are enough bait for both prospective mergers and new customers willing to install wind energy projects.

Market Development

Suzlon has experienced a reduction in sales because of the economic crisis that has intensified pressure on the company’s financial performance. As a result, the company embarked on the acquisition of Repower, a move that has accumulated huge debts for Suzlon. The organisation has not made a single profit from this acquisition.

The achievement of the desired business goals requires a realistic strategic alignment. The SAF model embraces various business practices that play a significant role in the success of the Suzlon Group. The recommendation for Suzlon in a bid to search for additional revenue would be developing markets in third world countries that have affordable and comprehensive coastline.

These countries often face power challenges. The company can chip in to broaden its market internationally. It will be cheap to secure human labour and other resources such as land in developing countries. These factors can serve as an added advantage for profitability. According to the SAF model, this business approach will also counter the increasing operation expenses incurred by the company in developed and emerging economies where competitors are forcing Suzlon to offer low priced products.

Entering Joint Venture with prospective Companies

Suitability

The wind power industry is in line with the global campaign for clean and renewable energy ventures in a bid to reverse the adverse effects of climate change. As a result, Suzlon having excelled in the industry as at 2007 before the financial crisis; the company can attract joint ventures to increase its working capital.

A political will supports the wind power industry. Since the company has a commanding market share around the world, no investor can turn off the smart deal. The industry in which Suzlon operates is socially suitable as it contributes towards the generation of clean energy that reduces pollution effects caused by generic power generators.

It is in line with vision 2050 of reducing carbon emissions by 50% (Lewis 2014). Wind power energy is a welcome idea all over the world. This universal social acceptance makes any deal that will see increased positive business for Suzlon suitable (Bana 2012). The customer and market demand for clean energy are continually growing both in developed and developing economies.

The joint venture will ensure that the good work of Suzlon continues as the company continues to deal with its debts dilemma (Jolly & Raven 2015). The company has strong unmatched competencies that a prospective partner can bank on for long-term success.

Feasibility

Feasibility seeks to establish whether Suzlon has the resources required to pursue merger or joint venture choice. The internal capabilities include its renowned research and development investment including high technology and work force (Jolly & Raven 2015). Suzlon can help focus on its operations instead of the domestic market only besides implementing the solar energy plans through joint ventures (Santos-Alamillos et al. 2015).

Other companies interested in collaborating with Suzlon might have the prowess and technological advantage in the sector (Santos-Alamillos et al. 2015). This situation can help the company achieve its dream objectives sooner than later. The 6M model analysis that stands for money, machinery, materials, and workforce can be applied in this case.

In terms of money, Suzlon is incapable of taking up any meaningful projects without outsourcing for funds. In light of this financial crisis, joint venture means additional financial capabilities. The company boasts of a growing order book that it can utilise to influence its joint venture partnerships. In terms of machinery and technology, Suzlon is highly competent in the design, manufacturing, and installation of WTGs (Ran et al. 2015).

This advantage makes the company outsource for funds through mergers in a bid to continue with its business. Suzlon has maintained an overseas presence in over 25 countries where it has set up wind farms besides employing many people (Pescador 2015). In addition, the recent acquisitions brought in experienced engineers and other competent technicians in the wind energy industry (Ran et al. 2015).

This human resources potential is enough for the company to continue harnessing wind energy in line with the global will to combat climate change (Upadhyay 2014; Pescador 2015). The company is flexible enough to train employees on handling solar power generation in the event that new joint ventures will kick-start the planned project.

The company has already grid transmission in place with the existing customers that can be used for solar power transmission. The internal environment for Suzlon permits uptake of the planned projects, given that the financial challenge is resolved.

Conclusion

Wind power industry has been in existence since the 1980s when the three armed rotor blades were invented. The adoption of this clean source of power generation has been intensifying every year with the last decade recorded influx of players in the industry. The driving force behind the push for green energy is the fear that the greenhouse effect might alter people’s lives in 2050.

The increased carbon emissions recorded in the last decade coupled with depletion of fossil fuel deposits have sparked the need for stakeholders to undertake strategic measures. In this regard, national governments and regional organisations have created a political interest in the support and subsidisation of green energy entrepreneurship efforts.

Suzlon is a leading investor in the wind industry with the company having customers both domestically and internationally as at the period ending in the year 2007. However, the aftermath of the 2008 financial crisis Suzlon has had a declining market share globally with the company having a huge debt of $2.05 billion following several acquisitions. As a result, the company cannot serve its global customers since it has failed to undertake the solar energy project that was scheduled to commence in 2015.

References

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Bana, S 2012, ‘Suzlon rides the tide’, Renewable Energy Focus, vol. 13 no. 1, pp. 10.

Jin, X, Rong, Y & Zhong, X 2014, ‘Wind turbine-manufacturing industry in China: Current situation and problems’, Renewable and Sustainable Energy Reviews, vol. 33 no.1, pp. 729-735.

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Pradhan, D 2008, Suzlon Energy Ltd: Making Foray Abroad. Web.

Rai, V & Funkhouser, E 2015, ‘Emerging insights on the dynamic drivers of international low-carbon technology transfer’, Renewable And Sustainable Energy Reviews, vol. 49 no. 1, pp. 350-364.

Ran, X, Miao, S, Jiang, Z & Xu, H 2015, ‘A framework for uncertainty quantification and economic dispatch model with wind–solar energy’, International Journal Of Electrical Power And Energy Systems, vol. 73 no. 1, pp. 23-33.

Santos-Alamillos, F, Pozo-Vázquez, D, Ruis-Arias, J, Von Bremen, L & Tovar-Pescador, J 2015, ‘Combining wind farms with concentrating solar plants to provide stable renewable power’, Renewable Energy, vol. 76 no. 1, pp. 539-550.

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Sivaraman, V & Agarwal, A 2012, ‘Suzlon – The ‘Upstart’ Acquirer from India’, Journal Of Strategic Management Education, vol. 8 no. 1, pp. 27-60.

Upadhyay, D 2014, ‘Coping with Climate Change: India–EU Cooperation on Renewable Energy and Clean Technology’, India Quarterly, vol. 70 no. 3, pp. 241-256.

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