luotang analysis
Strategy of the company
The general company strategy of Luotang is Cost Leadership. Luotang produces electricity, the product characteristic of which is generic/mass production. The price of the product is settled by the market (government), so the company is by large a price taker. In the electricity supply market, there are more than 60 electricity-generating units in Hubei Province, including the famous Three Gorges dam project. Given the market competition, if Luotang increased price, Hubei Provincial Power Company (HPPC), the only purchaser would better turn to other suppliers for electricity. Thus the product is highly price elastic at least for Luotang. Furthermore, Luotang tried very hard to cut the cost of production as it strived to cut fuel price, increase plant availability and improve fuel economy, indicating the cost leadership strategy. Other Characteristics of Luo Tang taking a cost Leadership strategy can be summarized in table.
Key factors of success
Fuel price management
Fuel price management is crucial to power plants. According to the contract with Pingdingshan, Luotang paid a fixed price per tone of low sulfur bituminous coal delivered. Luotang was somewhat protected from the effects of increases in fuel prices since the power purchase contract contains provisions to adjust electricity price. Thus, the gross profit could be increased.
Increase sales and production
Plant availability and fuel economy were improved over the year, which increases production. Furthermore, Luotang was successful at biding to sell electricity above the amount in contract to HPPC. It was also able to negotiate Excess Energy sales in the previous years, thus increasing the revenue.
Economic growth
China has seen robust economic growth in the past two decades. In recent years, Chinese government prioritized the development of middle and east china including Hubei province. In 2012, Hubei’s GDP growth was 11.3%. Luo Tang City’s economy
The general company strategy of Luotang is Cost Leadership. Luotang produces electricity, the product characteristic of which is generic/mass production. The price of the product is settled by the market (government), so the company is by large a price taker. In the electricity supply market, there are more than 60 electricity-generating units in Hubei Province, including the famous Three Gorges dam project. Given the market competition, if Luotang increased price, Hubei Provincial Power Company (HPPC), the only purchaser would better turn to other suppliers for electricity. Thus the product is highly price elastic at least for Luotang. Furthermore, Luotang tried very hard to cut the cost of production as it strived to cut fuel price, increase plant availability and improve fuel economy, indicating the cost leadership strategy. Other Characteristics of Luo Tang taking a cost Leadership strategy can be summarized in table.
Key factors of success
Fuel price management
Fuel price management is crucial to power plants. According to the contract with Pingdingshan, Luotang paid a fixed price per tone of low sulfur bituminous coal delivered. Luotang was somewhat protected from the effects of increases in fuel prices since the power purchase contract contains provisions to adjust electricity price. Thus, the gross profit could be increased.
Increase sales and production
Plant availability and fuel economy were improved over the year, which increases production. Furthermore, Luotang was successful at biding to sell electricity above the amount in contract to HPPC. It was also able to negotiate Excess Energy sales in the previous years, thus increasing the revenue.
Economic growth
China has seen robust economic growth in the past two decades. In recent years, Chinese government prioritized the development of middle and east china including Hubei province. In 2012, Hubei’s GDP growth was 11.3%. Luo Tang City’s economy