Vestas Expansion Into Small Wind Turbine Industry

Topics: Wind power, Wind turbine, Renewable energy Pages: 9 (2731 words) Published: April 15, 2012
Executive Summary
With Vestas feeling the heat from the recent financial crisis, together with the effects from the increasingly competitive industry, the company had reached a corporate strategic crossroad, whereby in order to anchor Vestas’ global leadership position, new expansion opportunities and alternate revenue streams would have to be adopted to mitigate and spread risks brought about from such precarious external crisises. As a result, based on an external and internal analysis of the corporate situation conducted, three afflicting strategic issues for Vestas were identified: 1) Slow growth in existing dominant markets and increased competition in growing markets for Large Scale Wind Turbines (LWT). 2) Overdependence on government incentivised markets.

3) Opportunity in the Small Scale Wind Turbine (SWT) Industry. Hence, it is proposed in this report that Vestas adopt a corporate diversification strategy, whereby an expansion into the SWT industry will act as a strategic move to circumvent the problem of slowing growth and increasing competition in the LWT segment, as well as retain global market leadership in the overall wind turbine industry. Vestas can do so by undertaking a cost leadership approach in three phases by firstly targeting the United States of America (USA) market to capitalize on its valuable resouces and capabilities, establishing learning curves and economies of scale. Only after having gleaned technological expertise and cost advantages should Vestas move onwards to the second phase to capture the China market and subsequently other potential markets in the third phase of the strategic approach. With this proposed strategy, Vestas will be able to exploit the budding opportunity in the emerging SWT industry to build sustainable growth based on cost advantages, ultimately eliminating dependence on government incentives in the long run.

1.0 Introduction
Vestas Wind Systems A/S (Vestas) is a pioneer in the global wind turbine manufacturing industry. With installations in over 63 countries, it is considered one of the market leaders in the industry today. However, in recent years, it has been losing market share due to the changing competitive landscape it operates in and hence, it is looking at new areas for growth. This report will begin by examining Vestas’s historical success; followed by an external and internal analysis to identify the key strategic issues it currently faces. With the key issues identified, including the opportunity of entering the Small Wind Turbine (SWT) industry, we will proceed to discuss the corporate and business level strategies it should undertake to capitalize on their strengths and possibly achieve a new sustainable competitive advantage. 1.1 External Analysis (PESTEL & Competitor Analysis)

1.1.1 Political & Legal
The growth of the renewable energy industry can be attributed to two key factors. The first is the establishment of key energy targets various countries had to adopt, following the Kyoto Protocol (UNFCCC). The second was increased government spending and policies geared towards encouraging growth of the industry. As a first-mover, Danish company Vestas was in an excellent position to capitalize on this favourable environment. However, with a declining commitment of BRIC countries and other key industrialized nations such as the US and Japan to continue pursuing these energy targets, coupled with the unfortunate expiration of U.S. Production Tax Credit for Large wind turbine (LWT) by 2012 year end, the future of this industry is at best uncertain. (Tulloch, 2012) 1.1.2 Economical

Prices of crude oil and natural gas typically have a positive correlation with economic outlook. For example, economic crises in the past have caused spot prices of both WTI and Brent Crude to drop, rendering renewable alternatives less economically attractive and consequently lower growth rates. (See Exhibit 12 & 17) For big incumbent players...
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