VESTAS CASE

THEME 3: INDUSTRY & COMPETITORS

Written exam 2nd semester

Bachelor of International Sales and Marketing Management
Team Z

Wednesday 21 February 2018

No. of characters: 19,000
No. of pages: 16
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Table of Contents
Question 1 ................................................................................................................................................. 3
SCM & Organization............................................................................................................................................................... 8
Question 2 ...............................................................................................................................................11
2.1. .............................................................................................................................................................................................. 11
2.2............................................................................................................................................................................................... 11
Question 3 ...............................................................................................................................................12
3.1. .............................................................................................................................................................................................. 12
3.1.1...................................................................................................................................................................................... 12
3.1.2...................................................................................................................................................................................... 13
3.1.3...................................................................................................................................................................................... 13
3.2. .............................................................................................................................................................................................. 13
3.2.2...................................................................................................................................................................................... 13
Bibliography ..........................................................................................................................................16

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Question 1

The global wind energy company called “Vestas” which provides products and
services for business to business sectors mainly is aiming to increase the
market share in order to grow their revenues that are suffering a 20% decline at
the moment. (p. 11, Vestas case). Moreover, Vestas has access to all the
relevant segments and delivers its products and services to:
• Utilities
• Developers
• Independent power producers
• Pension funds
• Large corporations
• Others (source: Vestas annual report 2017)

Figure 1(source: Vestas annual report 2017)

The company is offering products and services either tangible or intangible

within the wind energy sphere.

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Tangibles Intangibles
Products Turbines • Technologies for
turbines
• Operations &
maintenance
• Solutions
Services Parts repair • Maintenance
• Optimisation
Table 1( Vestas products, own adaptation)

As a result of harsh competition that drags the prices down and attracts the
market’s share in the global wind turbine industry, to acquire a bigger piece of
the pie, the globally operating company must assess the importance of several
qualities as the ability to provide global services and the strategic thinking of
the company and transform them into a sustainable competitive advantage.

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Figure 2( Source: adapted from chapter 3, Development of a firm's competitive advantage, Hollensen, pp. 75)

Porter’s diamond is emphasizing that domestic rivalry, stimulates the

technological novelty among global companies as Vestas. In this manner, the
latter company’s human resources are urged to adopt cost effective strategies
to provide the lowest cost of energy solution and fleet optimisation e.g.
TurbinePlus and LifePlus (p. 6, Vestas case)
Considering factors and demand conditions for the wind products and
services there is a reflection of the home-market needs. In Denmark, there is a
large demand for turbines and wind energy as a result of the natural conditions
in the country and the innovative industry cluster (p.10, Vestas case). By
obtaining the bronze certificate for wind cluster it is “easier to apply for EU
funding for work on projects that support the innovation work and strengthen
their competitive edge” which is a benefit for further plans and solutions.
However, the company’s strategy to secure its position on the market by
creating great value whilst working close with the customers is the driven factor
for international success.
Related to Porter’s model the government also accounts for the 4% losses
recorded in US when a new tax was included. Moreover, from the climate
agreement signed by 200 countries, America resigned in June, 2017. On the

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other hand, the expectation for year 2050 is a substantial increase between 27-
61% as no policy will tax the society for adapting to climate change. (p.7-8,
Vestas case).
Vestas has the financial resources to keep a stable share in America, though the
legislation will not encourage the wind turbine industry and that is why a
proposal from the Senate wants to reach a compromise before the president
Donald Trump can sign it off. The measures are to prevent the adoption of the
tax which puts pressure on actual prices and to avoid the risk of losing the US
orders.
All in all, Vestas is not in a favourable situation from a macro perspective as the
US decision leads to a higher degree of uncertainty on the market but the
constant development and adaptation to the customers’ needs of products and
services constitute a competitive edge in US the country which recorded the
biggest dividend amount of DKK 2.2 billion (p. 21, Vestas case)

Moving on to the meso niveau for a deeper understanding of Vestas’

competitiveness, relevant parts from Porter’s five forces model (1980) are
identified: the intensity of rivalry and the factors related to this force, and the
buyers’ power. Firstly, the rivalry is intense in the global wind energy sector and
the main competitors are companies from China and US that obtained an
impressive market share in year 2016. (p. 7, Vestas case)
Secondly, according to Porter (HBR, 2008), the market growth is slow based on
the financial figures of the past 3 years which reveals a great rivalry among
companies. Moreover, the switching costs are very high for turbines because
the product is specialized, and the maintenance and optimisations procedures
can be done only by Vestas’ employees. Nowadays, the buyer power raised as
the business to business customers purchase a large quantity and for instance
with the loss of 20% of the top buyers, the company can record up to 80%
losses. Then, the suppliers that ask for lower prices and decide to opt for a
price war can increase the buyer’s power toward the industry. However, the
industry leader on the European market which is Vestas has resources that only
large players possess to sustain a price war long enough to eliminate the
competitors which are struggling either internally or externally at the moment
(p.15, Vestas case).
By identifying and understanding the forces that shape the industry
competition, the starting point of a strategic approach is reached.
Besides the macro and meso level, an efficient measure to test a company’s
capabilities, resources, perceived value by the customers and practices is
considered the benchmarking process. So, according to Haines & Hassan (1997)
there are four types of benchmarking:
1. Internal
2. Competitive
3. Functional
4. Generic
For a general overview of Vestas’s future situation regarding a competitors’
comparison, the table presents the significant characteristics of the

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international market excluding China, which is responsible for “close to half of

the global wind market”.

Advantages Disadvantages Resources Market capital

2018 (Million)
Vestas Vast capital to USA uncertain High 12,432.74 euro
support a price situation
war
Siemens- The merge Cultural issues/ Moderate 8,463.21 euro
Gamesa between two HR skills
companies
Nordex Large scale Acquisition Low 914.93 euro
target
Table 2(Source adapted from Murray & Driscoll, Strategy and process in marketing, pp.130-145, Prentice Hall)

Vestas is the leader considering the market capital and the skilled human
resources that support the business while a considerable concern is facing the
company in America as a result of several political issues. However, compared
to Siemens-Gamesa which encountered flaws internally as the Spanish and
German cultural discrepancies affect the working environment. In addition to
that, trained employees left the company in the same time when Spanish trade
unions are threatening strikes.
The last competitor is from Germany and one of its biggest advantages is the
large-scale production. But, low earnings and lack of resources will make the
company a target in the near future.
Therefore, being an undisputed leader in Europe and being aware that “in 2016,
China accounted for 42% of new wind turbines constructed worldwide” a
possible solution is to cooperate with China to reduce the actual drop in price.

When the trend for quality wind turbines will raise awareness towards
customers, Vestas will gain some power and the positive development from
year 2015 to year 2016 show an impressive 1.3% increase in market share
within Chinese market. (p. 21, Vestas case). So, assuming the disappointment
faced by Siemens-Gamesa and Nordex as a result of an unprofitable partnership
with China, the best solution is to differentiate the wind turbines and the
complementary services in the Chinese market. By doing so, and taking
advantage of the innovative cluster establish in Denmark within the wind sector,
the image of Vestas will be associated with a different product that adds value
to every customer’s purchase and the market is penetrated over time. For

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Vestas, the timing of entering the market and the opportunities inside the
Chinese market are vital to assess for reaching their goal.

To sum up all, as the wind industry evolves, the forces and factors previously
stated have an impact on the current company and it is hard to adhere to a blue
ocean strategy as the competitors show aggressive behaviour on the market
and there are no factors unexploited that may add value to the wind turbines, a
future partnership or cooperation with related or supporting organization from
China is a profitable solution for expanding the market share. As Siemens-
Gamesa and Nordex have had previously not so satisfying partnerships with
China that is dominated by the local market share of 94.8%(p.20, Vestas case),
Vestas does not have the first mover advantage, but it can be a “smart” leader
by improving the model of cooperation with the biggest potential market and
close a profitable agreement when the trend for top quality turbines will raise.
SCM & Organization

The most effective approaches that define a supply chain are found in Vestas
practices because supply chain metrics are linked to the business strategy and
targets are set after both an internal and external benchmark.
For instance, a strategic perspective sees the innovation procedure as an
enabler of Vestas’s growth on the China market’s perspective (p.11, Vestas
case). The company which was certified with the title of innovative cluster in
Denmark expects every department to develop or to optimise actual services or
products. The upgraded wind turbines together with the live extensions are a
good indicator of constant innovation.
The operations and maintenance departments are a vital part of the supply
chain of Vestas as it offers “service and training, and work in close collaboration
with our customers to help them find the optimum solution for operating their
wind power plant.” (p.5, Vestas case)

Furthermore, based on the external benchmarking we can place the

performance of the company in the wind energy’s industry as the leader in
Northern Europe, but when taking China into consideration, “Goldwind”
accounts for 6.363 MW, while Vestas together with Gamesa and GE Energy have
a total of 1.213 MW. The difference is due to the actual trend of choosing a
local Chinese company for the country’s citizens and Vestas can only wait for
an uptrend for top quality and innovative products in order to attract a larger
market share or to have a partnership agreement with China to fulfil the
corporate social responsibility. By partnering, the benefit to business and
society is high and it constitutes a win-win situation for both parties involved.

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Figure 3( McKinsey model)

Furthermore, CSR becomes an important aspect for the business and Carroll’s
(1991) model aims to connect the company’s four components regarding
ethics, philanthropy, law and economic part into one pyramid. As Vestas is a
global company with ambitious goals, the fifth element is an own adaptation to
their current strategy for a universal picture.

Figure 4(Carroll's pyramid 1991 adapted to Vestas' context)

As Vestas, Siemens-Gamesa and Nordex are global companies and their

functions within product creation and service offerings are complex, the culture

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and the organization can be identified, and several benefits are scored by the
leader. Vestas’ organization has offices in 24 countries and the structure is lean
enabling a close relationship between employees. Also, the vision “Global leader
in sustainable energy solutions” together with the mission to “deliver best-in-
class energy solutions for the benefits of Vestas’ customers and the planet” are
understood and aligned with the integrated business model which is showing
the complexity of the organization and how to direct every activity to transform
the overall performance into success.

Figure 5(source: Vestas annual report 2017)

So, assuming a benchmark based on the internal aspects for cultural

integration, human resource and capability of entering a price war, the table
shows the difference between Vestas and Siemens-Gamesa. It is clearly
highlight the strong position of Vestas and the competitive edge that the
company gained over time

Table 3(own adaptation based on internal features)

Siemens-Gamesa Vestas

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Culture Cultural integration issues Cultural integrity all over the

globe

HR Lack of skilled staff Trained staff

Resources to maintain a Medium term Long term

price war

However, as China is the global leader which accounted for 34.6% of the worlds’
total capacity, followed by US with 16.9% (p.6, Vestas case), the company’s
vision is not yet achievable. This can be translated into a different alignment of
the organization’s activities and priorities with the overall corporate objectives.

A solution for this issue, could be a prior monitor of the KPI’s concerning
Vestas’ speed of production and capabilities into expanding the market share
and then to propose a mission that are easy to follow and reach. For example,
the first key performance indicator is the sales which raised and “in fact things
couldn’t be better. And we did that at a price level where we delivered 12%
EBIT”. (P. 15, Vestas case).

Question 2

2.1.

Depending on the company’s financial resources, an acquisition assumes that Siemens-Gamesa

will purchase Vestas, procedure that is improbable because Vestas has more resources than the
other company. However, this could be considered a public acquisition because the large
corporations are listed on stock exchanges or alternative markets and it is categorized as either
“friendly” or “hostile” depending how the acquired company perceives the acquirer. Anyway in
the case when Siemens-Gamesa acquire Vestas it will be considered a hostile takeover and
according to the law, it becomes a “subsidiary” of the purchaser.
The term “Know-How” means any technical and proprietary information that can be kept secret
which is designated through consultation between the parties.

2.2

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Regarding the joint marketing there should be an agreement signed and both parties must be in
accordance with the stipulated rules from the paper. There can be a complex discussion about all
the factors involved in this kind of agreement especially when both companies are global. For
example, the most relevant part is that companies can provide to each other marketing and
promotional materials for the Danish wind power and they can create joint promotional material
related to their activities under the made agreement. Moreover, the governing law in the
agreement is the Delaware law without regard to its conflict of law’s provisions. Then mediation,
arbitration or interim relief can be used for dispute resolution between the two parties involved.

For the joint research and development department, used equipment, the human resources and
the research involved shall be performed by both parties for a determined period for example a 2
years’ agreement. The settled place together with the useful tools must be stated in Memorandum
of Decision on the Joint Research Details and regarding expenses each party hereto shall in
principle bear any and all expenses necessary to fulfill its respective role.

The prices shall be established through consultation of both parties on the basis of fairness and
reasonableness or evaluated by a third party agreed by Siemens-Gamesa and Vestas.
Furthermore, article 29 states that price calculations have to be submitted to the approval
authority first in order to take effect.

Question 3

3.1.

If the company’s turnover increase at the same speed as the global cumulative installed wind
capacity, there is a good indicator of growth and the direction of change shows and uptrend as
well.

3.1.1.

The profit margin is increasing from year 2012 to year 2016 which can be translated into a
positive development over time. From year 2012 to year 2013 the increase is at a faster pace than
from year 2013 to year 2016. This could be the return on some previous investments or some
markets are expanding slower than others.

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3.1.2.

The global annual installed wind capacity is fluctuating as it faces a rise from year 2013 to year
2015 followed by a decreased in 2016. The company’s turnover is increasing from year 2012 to
year 2016 which shows a stable business.

3.1.3.

The cost of goods sold is the difference between revenue and gross profit. The index numbers
show a constant increase from year 2013 to year 2016.

3.2.

3.2.2.

At the moment the US dollar is 6.05 Danish Krone and will have a tendency to
be more stable and since 2015 the US dollar has been more stable according to
statista.com.

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However, the inclusion of a new tax and the election of the president Donald
Trump may cause some changes and make the environment unclear and
uncertain. So, if the US dollar goes up, Vestas should aim for a “call option”
which is more flexible or a “forward” agreement which is a fixed solution but
without having to pay a premium option but a certain amount which depends
on the interest rate. However, the most common method is the forward
therefore a global company as Vestas should use the safest solution to secure
its capital.
If the analysts can assess very well the future market situation and it is a high
probability for the US dollar to fall under 6.05 dkk, the Danish krone will gain
power and a no hedging method will bring the biggest profit.

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Bibliography

Bjarke Tinten, Lotte Dupont-Mersing, Trine Krohn Schaldemose

(2016). International business law. Hans Reitzelg Forlag
Hollensen, S., (2015) Marketing Management, A relationship approach.,
Chapter 3 Development of the firm’s competitive advantage, p. 69-84
Retrieved 20.02.2018 [offline]
Nisar Ahama Nalband m.fl., Redesigning Carroll’s CSR Pyramid
Model, Journal of Advanced Mgmt. Science Vol. 2, No. 3, sept. 2014.
Retrieved 20.02.2018 [offline]

Porter, Michael E. The five competitive forces that shape strategy,

Harvard Business Review. Jan2008, Vol. 86 Issue 1, p78-93. Retrieved
20.02.2018 [offline]

https://www.vestas.com/~/media/vestas/investor/investor%20pdf/financial%20reports/2017/q4/1
80207_03_annual_report_2017.pdf

https://www.reuters.com/finance/stocks/overview/NDXG.DE

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