BJ20051- SIMRAN JAIN

Suzlon is the market leader in India's wind industry, with a ~50% share of the market. In
terms of installed capacity, it is the fifth-largest in the world. Its success and high growth
rates can be attributed to its systems thinking approach of developing competitive
advantage through vertical integration, providing end-to-end services, customised offerings,
and strategic acquisitions of key players in the industry.

INDUSTRY ANALYSIS

POLITICAL

The majority of the global markets where Suzlon operates have a favourable political
environment. They provide constructive policies and exert pressure on companies for the
advancement of sustainable production of power through renewable resources like wind.
Therefore, Suzlon has a high potential for development in the sector.

ECONOMIC

The global wind energy market has increased more than fivefold between 2000 and 2007. In
2006, wind energy's annual market demand continued to grow at an estimated rate of
~30%. There has been a positive focus on the wind energy sector as GWEC forecasts growth
to be more than 155% by 2012, reaching 240 GW of total installed capacity. Major players in
the industry operate globally. Thus, global players like Suzlon face external risks in foreign
economies. The recession in the US and accompanying slowdown was unfavourable to the
company but the overall rising demand and promotion by European Union countries are
expected to offset the effect. Also, Suzlon, having the majority of the orders in terms of
exports, is exposed to foreign currency risks.
In economic terms, the sector holds value because of its limited marginal costs. The wind is
plentiful and available for free; thus, companies need to focus mainly on fixed costs.
However, since the capital costs requirement is high, the cost per unit of energy produced
could be high for small players. The wind costs are comparable or higher than coal and
natural gas.

SOCIAL

With an increased appreciation of cleaner, environmentally friendly, renewable energy

sources, there has been a shift towards sustainable sources like wind energy. The wind
farms are typically set up in rural areas due to the low prices and wind strength. However, it
presents a problem of culture shock and other concerns like facing tough time getting
permits from occupants to allow their placement in farms.

TECHNOLOGICAL

Constant innovation through upgraded technology has enabled growth, superior value
proposition, and delivery. It also provides an opportunity to differentiate the product from
competitors and provide customised offerings to consumers.
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There have been constant technological developments in the global industry. For instance,
Suzlon designed the S52 turbine, which is not only an engineering marvel but also provides
an access to small businesses at affordable prices.

ENVIRONMENTAL

Wind energy is an ideal sustainable source of energy since it doesn't create harmful or
radioactive waste. Every megawatt-hour of power that is produced by wind energy assists in
decreasing 0.8 to 0.9 tonnes of greenhouse gas emissions that are produced by coal or
diesel fuel generation annually. It is rapidly emerging as an alternative to traditional energy
sources in developed and developing countries for sustainable growth and mitigation of
effects of climate change.

LEGAL

The legal environment has been a boon for the energy sector. The introduction of the legal
obligation for energy producers to increase the electricity produced from renewable sources
has positively impacted the market. The Renewable Obligation in the UK, Renewable
Portfolio Standards in the US, and the 20% target set by the European Union to generate
power from renewable sources have been favourable moves. Also, the sector has benefitted
from the subsidies granted in various jurisdictions. Several tax incentives are offered too.
The production tax credit in the US, with December 2008 deadline for has not been
reviewed yet. However, it is expected to be provided in some form through legislation.

COMPETITOR ANALYSIS

THREAT OF NEW ENTRANTS

Due to the profitable returns in the industry, the threat of new entrants exists. However,
economies of scale act as an entry barrier. Organisations wishing to enter the market face
high capital costs in terms of research and development and fixed assets. Hence, it becomes
difficult for them to achieve the economies of scale enjoyed by established players with a
global presence. New entrants are more likely to target emerging markets. Also, due to the
increasing interest in renewable energy, particularly wind energy, producers of traditional
energy sources are entering the industry to diversify their business. These entrants can
leverage their large resources available to tap the market. Experts have predicted that
Suzlon might observe a gradual decrease in profit margin due to dilution of first-mover
advantage with these developments.

BARGAINING POWER OF SUPPLIERS

Backward integration of operations has helped Suzlon minimise the threat posed by
external suppliers. It has developed in-house facilities globally and made strategic
acquisitions that have enabled significant control over the end-to-end value chain and
reduced supply bottlenecks.

BARGAINING POWER OF BUYERS

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Due to low switching costs to non-renewable sources, consumers have considerable

bargaining power, and customers will switch to cheaper sources. For example, wind energy
sector remains competitive as long as the crude oil price remains above US $40 per barrel.
However, to avail of various incentives, consumers have to work with existing suppliers.

THREAT OF SUBSTITUTES

The primary substitutes of wind energy and turbines are the traditional sources of energy,
for example, coal, oil, etc., and other renewable sources of energy like hydroelectric power
and solar power. However, with favourable policies and demand for environment
conservation, there has been a focus on non-renewable sources of energy. The threat of
substitutes occurs when alternatives provide a cost-effective option. However, due to the
high loss in investment included in switching costs, the threat is medium.

COMPETITIVE RIVALRY

The major players in the market are focused on expanding their capacities and market
share. To remain competitive, companies invest in providing superior technologies and
differentiated products to consumers. Various options of synergies and technology
advancement are also being explored to minimise the costs and increase efficiency. Being
the market leader in the domestic market, Suzlon faces less competition as the sector is
developing. In global markets, it faces a fair degree of competition. It may suffer a loss in the
US and Europe unless it quickly moves to cost-saving large scale turbines.

AVAILABLE OPPORTUNITIES AND EXPANSION PLANS

With various strategic acquisitions, Suzlon has developed control over the value chain.
Hence, it should now focus on growing organically. Its success can be attributed to its
positioning as a low-cost producer with high-quality design and technology and its capability
in providing end-to-end solutions.
Suzlon should focus on continued expansion to leverage the growth opportunities in the
industry. To increase the economies of scope, it should develop its product range, which is
limited compared to the offerings by competitors like Vestas and Enercon in a category. To
improve the economies of scale, it should make use of large turbines that saves production
costs. It should also focus on acquiring capital for its growth since the current pace poses a
drain on its financial resources. While maintaining a base in India, Suzlon should also focus
on alternative manufacturing facilities to limit the exposure to the risk of market disruption
in India.

CULTURE AND INTERACTION BETWEEN LOCAL AND GLOBAL STRATEGIES

Suzlon has focused on expansion by targeting various growing international markets. It built
a strong global presence by strategically establishing the headquarters in Denmark due to
industry expertise, suppliers, and available workforce. It faces critical challenges like cultural
shocks in rural areas. It has a low cost-benefit by manufacturing locally in India. By
strategically acquiring key players in other countries, it didn't face any significant
acceptability and regulatory challenges and had access to newer markets.