Vestas in Russia

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Vestas in Russia

For my exam project in International Business Environment I have chosen to write about the Danish cooperate Vestas Wind Systems A/S (referred to as Vestas throughout the paper). Vestas is the world’s largest producer of wind turbines and in addition to this it is also the leading company when it comes to green technology regarding wind energy . Vestas not only serves the Danish domestic market, but the company is also present on several foreign markets in other parts of Europe, Africa, Asia, Australia and North and South America. With over 22.000 employees spread over 35 countries Vestas is categorized as being a multinational cooperation.

As for the market of entry I have chosen The Russian Federation (referred to as Russia throughout the paper). Vestas has not yet entered the Russian market so my exam project will be a hypothetical one. One could question why a global actor like Vestas not already has entered a market with so big opportunities as Russia, but along with visions for great profit comes the reality of great risks and challenges as well. Russia is a vast market for windmills taking the size of the country and the climate debate into perspective. The country is the fourth largest consumer of electricity in the world , but lack of technology hinder Russia to produce it in a climate friendly way. The relevance of a successor to the Kyoto Protocol is at its highest and Russia has expressed great will to find sustainable solutions for its large electricity consumption. Companies capable of exploiting such market are in position for massive gains. This is however easier said than done. Denmark and Russia differ on several aspects of their countries’ structures and Danish companies planning on doing business in Russia hence carefully have to consider these differences.

In this paper I will first describe and motivate the entry strategy of Vestas by using John Dunning’s OLI-framework . In this context I will argue why more advanced forms of FDI (Foreign Direct Investment) are appropriate for Vestas when entering Russia. Furthermore I will analyze the differences between Vestas’ home market conditions in Denmark, and the conditions of the target market, Russia, regarding adjustments in the marketing mix. To illuminate this section I will use E. Jerome McCarthy’s principle of the four P’s . Lastly I will summarize the above mentioned and discuss the best internationalization strategy for Vestas.

Vestas’ competitiveness
In order to describe and motivate the entry strategy of Vestas I will outline the advantages based on John H. Dunning’s OLI-framework. Although Vestas already has expanded into many different countries with regards to different culture, political systems and business systems it is not always suitable to use the same entry strategy although the firm is the same in every case.

O - Ownership advantage: Vestas’ competitive advantage
The O in Dunning’s OLI-framework of specific advantages deals with the Ownership advantage. To expand into new markets Vestas has to be in possession of something that gives the company an advantage compared to its competitors. Vestas has a clear ownership advantage first and foremost in form of its technology and know-how. Denmark has exploited wind energy since 1850s with the purpose of making agriculture more efficient. In the beginning of the 1970s the oil crisis influenced Denmark as well, and to avoid another economic breakdown the Danish government searched for an alternative energy industry. Vestas had already done R&D (Research and development) and tried out the construction of windmills since 1971. However they first entered the market in 1979 with a licensed windmill. In the development of the required technology, subsidy from the government and research on RISØ (The National Laboratory for Sustainable Energy) has had a vast significance for Vestas, enabling it to play the leading role it does today. Besides the...
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