| Business Case Analysis | MEMO |
Date: 9 October 2014 | |
To: KIOTO Group Senior Management | |
From: | |
Re: Your deteriorating position in the global solar thermal market race | |
European market is changing, your customers are backward integrating into your own business, the Chinese are dominating through price dumping and while your lobbying efforts are admirable, do you really think it is enough to put the Chinese dragon to rest? Emerging markets show high potential particularly due to your tremendous efforts in landing the KSA tender and establishing a track record in the region. Your white label products got you so far but is it still the right approach in these ...view middle of the document...
Establishing a 70% market share in Germany alone. To put it in perspective, GREENoneTEC made 40% of its business in Germany. * Growth in the European market has been artificially inflated by government subsidies. Subsidies that have been either reducing or cancelled altogether since market peak in 2008. German market suffered a 25% decrease in one year when subsidies plans were stopped. * End customer prices for solar thermal energy products (not PV) are high due to the high margins demanded by wholesalers (30%) and plumbers and installers added another 40% margin. GREENoneTEC though only gets a 10% margin. These high prices increase the threat from cheaper substitutes such as gas or electric water heaters. * The company prides itself with having a seamless supply chain and effective logistics services, a well trained permanent production team, optimized manufacturing processes to achieve both volume and flexibility and significant investments into R&D and innovation that produces a high quality solar thermal system. * 60% of newly installed collectors in Europe were delivered by the heating industry, which typically consisted of large companies, more and more of these companies were implementing their in-house productions of collectors. Turning them into competitors and forcing the company to seek new customers outside of the heating industry. |
3. ANALYSIS: Use a framework (PEST, Porter, SWOT, etc.) to analyze the issues in this case |
New entrants (High pressure) * Low barriers to entry * Differentiation based on quality and innovation for solar thermal energy products, PV is driven by low prices * Moderate capital requirements * Government subsidies incentives in some markets, 30% in China, high subsidies for PV in U.S.These factors represent an attractive market that is easy to get intoSupplier power (Low pressure) * No threat of forward integration * Raw materials prices going up (Aluminum 50%, Copper 150%)Suppliers are mainly raw material providers that are not likely to go into the solar energy businessSubstitute products (Moderate pressure) * A lot of cheap electric and gas products * Fossil fuel prices are also going up, limiting the threatThe high end customer price is giving way to cheaper alternativesRivalry (High pressure) * A lot of competitors, especially from China using low prices to dominate market * Branded products business model in contrast to GREENoneTEC * Started claiming similar superior quality and offering long term guarantees and warrantiesFierce competition from China, especially in the PV marketBuyer power (High pressure) * Customers are...