Example 2 CANADIAN SOLAR Case Analysis 1

CANADIAN SOLAR: Case Analysis
STEN 4980: Strategic Management

University of Windsor
Teacher Feedback for my 2nd case I got 80%
In the final case, plan strategically first!
Carefully consider what analytical tools you would apply, and ask
yourself why I would like to use the tools and when I should use
these tools before conducting analysis.
It will make your strategic analysis more effective and systematic.
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1
Background & Key Issues

Canadian Solar, founded by Dr. Shawn Qu in 2001, is a manufacturing company focused on
solar cells and modules. The company has its bases in China and Canada. The company has
recorded significant growth between 2004($9.7 million) and 2008($705 million). However, a
pertinent issue the company faces is competition from other multinational companies such as
Sharp and Sanyo, which have competed on their brand recognition, research, and development.
Another issue is the fluctuating prices of raw materials such as silicon, which is an essential
material in manufacturing solar equipment. Another issue the company needs to address is its
marketing strategy. Business today relies on good marketing strategies; Canadian solar only
relies on publications and talk shows which might not get the information to the intended
markets. Therefore, the questions regarding the key issues can be summarized as:
 What are the best markets Canadian Solar should focus on?
 How can they create competitive advantage over their competitors?
 What global strategy should they pursue?
External Analysis
PESTEL Analysis
Political: Government is handing out significant incentives programs to encourage the adoption
of solar PV technology. Electricity utility grids are heavily regulated by government bodies and
often were separate from the electricity providers. The future of the solar PV market greatly rest s
upon government incentives and renewable support schemes. Recently, the Japanese government
has set new targets to reach over 50GW of installed PV power by 2030. They have established a
feed in tariff scheme which will deliver 50 yen per kWh ($0.50 per kWh). In the USA,
numerous States have rolled out incentives and stimulus programs. In Canada, Ontario’s FIT
incentives have paid PV solar rates of $0.42 per kWh. The Chinese government announced
major subsidies for utility-scale solar projects – further changing the industry.
Environmental: When assessing the environment, climate change and global warming are major
factors in the effectiveness of products designed to extract power through natural sources. The
amount of sunlight certain locations get can ultimately have an impact on the amount of energy
these PV systems can extract, thus areas that receive more sunshine may be more appealing than
those that don’t.
Societal: People along with companies and corporations are more conscious of becoming more
environmentally friendly. With growing government incentives in many countries this will only
make the installation of PV solar panels more attractive for commercial, and personal use.
Technological: Solar efficiency typically ranged from 12% - 18% in PV modules, but new
technological breakthroughs are expected to occur and be able to convert larger amounts of solar
energy to actual usable electricity.
Legal: Germany is expected to be at the top of the market for the next few years due to the
governments continuing renewable energy law which was aimed to establish 12.5% of the
country’s energy to come from renewable sources. While Spain passed a law for an attractive
feed-in tariff that would give up to €0.44 per kWh for solar projects installed before
September of 2008.
Economical: The market is highly affected by government powers, over supply and under supply
occur regularly. The price of silicon is a major driver of the price of solar PV, and it is noted that
the price of silicon can vary.
Porters 5 Forces
Threats of new entrants: There is a high threat of new entrants due to all the political and legal
grants and support of this type of technology. Also, this can be considered a growing industry
that is far from its peak which makes it very attractive. There are also lower capital
requirements to start ups and only low to medium technology know how to make a PV module.
Bargaining power of suppliers: Suppliers have a low bargaining power, the price of silicon which
is a main component within the solar PV is a product where the prices can vary depending on the
supply and demand needs within the industry. New technological developments have been able
to re-use silicon on new solar PV which can drive the demand and the price down which results
in a lower bargaining power for suppliers.
Bargaining power of buyers: Buyers in this industry have a high bargaining power, there are a
lot of solar PV manufactures within the industry, and as noted there are other forms of energy
that are available to consumers.
Threats of substitutes: There is a high threat of substitutes, there are still many ways to extract
energy from earth besides PV solar panels. Some of these substitutions may not be as
environmentally friendly (nuclear, burning of fossil fuels) but are able to extract a lot more
energy. There are also other environmentally friendly substitutions such as wind turbines and
hydroelectric power.
Rivalry among existing competition: Currently there is high rivalry amongst the existing
competition. This is a growing industry with many competitors, some of which have been
around for a while and have built successful brands that have brand recognition and loyalty in
the market.
Internal Analysis
VRIO Analysis of Canadian Solar Inc.
V R I O
YES Brand Image
YES YES International Presence
YES YES YES YES Competitive pricing
YES YES YES YES Product pricing
YES YES YES YES Financial strength
Canadian Solar Inc. is known for using the VRIO analysis to develop competitive strategies
founded on the company's core strengths and available resources to help the company massively
gain a competitive advantage over other companies producing the same product or services.
Value: The Canadian Solar Inc. has a unique brand image and contains high integrity. The
company prides itself for long staying on the market. This image is an invaluable asset to the
company as a source of competency in the solar market. Also, the company uses China as its
primary manufacturing base. Notably, China is known for cheap labor, and the company is
taking advantage of the readily available delivery workers by training them to be more
productive. Today, Canadian Solar is among the largest PV companies in the global market.
Rarity: Canadian Solar has extensively invaded foreign markets and has a good global presence
operating in multiple regions and countries. This global presence has enabled the company to
create a massive consumer base earning revenue through various global markets. Through this,
Canadian Solar Inc. has excellent international recognition and cultural exposure.
Imitability: The company has excellent production capacities, operating at economies of scale.
The Canadian Solar Inc. control operational costs that the company has achieved through its
market expansion and consistent demand. It is also known that the company has maintained
competitive pricing compared to other players in the industry.
Organization: The company enjoys massive financial strength from the extensive sale of
products globally. This economic power is crucial for the company because it allows the
company to effectively evaluate potential mergers and acquisitions to have a more competitive
advantage.
Value Chain Analysis: The value chain analysis refers to deciding what activities go into
changing the inputs into an invaluable service and product for the customers. The value chain
analysis of the solar company includes the planning process, the competitive advantage in the
world market. The Canadian Solar company entails several activities that are related. The
value chain analysis is very critical and helps the company evaluate the actions that can be
barriers to the company's success.
SWOT Analysis
Strengths: Canadian Solar has its main base in China. As a result, the company enjoys a low
cost of productions supported by the government policies such as incentives. The company has
offices spread across various countries, including the US, Germany, and other Asian countries,
like Japan. The international offices play a pivotal role in the marketing of the company’s
products.
Weaknesses: The company’s marketing strategy is unable to reach a very significant market
segment. Most people living in rural areas could greatly benefit from solar alternatives.
However, they may not be able to attend the talk shows and even read the publications that are
the company’s primary marketing strategies. The current company's business and operational
model is unable to withstand a harsh business environment. An example is the 2008 financial
crisis, where the company recorded a net loss of $9.4 million. As a result, of the economic crisis,
the company recorded higher interest expenses on the short-term loan facilities, among other
costs.
Opportunities: The existing political goodwill in Canada and China is an excellent opportunity
for Canada solar to operate without fear of interferences. A wonderful political climate with
adequate strategies is necessary for propelling the growth of businesses, one which Canadian
Solar is utilizing. The company can also consider venturing into untapped markets such as
African countries with poor electrical connections. The solar solution can be an acceptable
alternative in such markets.
Threats: A significant threat Canadian Solar is experiencing is the increased competition from
other global companies in the solar market. Another threat is the fluctuating prices of silicon,
which is an essential element in producing solar equipment.
Financial Analysis
By analyzing Canadian Solar’s financial statements, we can get a better understanding of where
the company is currently at and where it is headed:
 Canadian Solar’s gross margin (the profitability ratio that shows how much a company
earns on each dollar of sales) is positive each year, however, it is decreasing. Canadian
Solar is not earning more money on its sales every year.
 Canadian Solar’s profit margin (the profitability ratio that shows how much a company
has generated from a dollar of sale) is negative each year, however, they increased
significantly from 2006 to 2007. For example, for every dollar of sales in 2006, Canadian
Solar lost approximately $0.14. This continued throughout each year, due to the high
expenses incurred by Canadian Solar compared to its revenues.
 Canadian Solar’s operating margin is low each year. This indicates that Canadian Solar is
not effective in converting the revenue they have generated into profits for the company.
This is also reflected in the company's profit margins, as they are losing money on sales.
Canadian Solar’s key ratios are not performing very well over the 3-year period given. All
ratios are low with some being in the negatives, which will scare away any potential investors.
Based on this analysis, the company is having a difficult time converting the money they
generate into profits for the company. Their expenses outweigh their revenues by a large amount.
Canadian Solar needs to spend their money more efficiently. For example, in 2008 the company
spent $34.5 million on general and administrative expenses, compared to only $1.8 million in
research and development. In a competitive industry, staying on top of your competition is
important - research and development is crucial in staying competitive. As stated in the case,
Canadian Solar’s main competition has advantages due to special technology, such as First
Solar’s (firm with the 3rd best market share in 2008) thin-film technology. They also need to be
aware of the changing prices of silicon, which will also affect profits moving forward. If
Canadian Solar wants to grow more internationally, they need to restructure their financial plans.
Furthermore, Canadian Solar was projected to earn a net income of $49 million in 2009;
however, this is mainly due to new government regulations - without these the company would
still be operating at a loss (projected loss of $18 million). Canadian Solar should take this into
account when moving forward with projections. Additionally, the stock prices' 52-week range
was from $3.00 to $19.91 and closed at $16.74 in September of 2009. Canadian Solar posted
losses per share each year, meaning that this stock may be overvalued. They are also low er in
market share compared to other PV module producers (coming in 8th out of 10 in 2008).
Investors need to be very careful of Canadian Solar going forward, unless the company makes
changes in its operations to get a better control on their finances, specifically the profits the
company earns.
“Bridging the gap” of Canadian Solar Inc. : For the company to perform better than the current
situations and the harsh reality of today’s world market, Canadian Solar Inc. needs to revise its
business model and operations. The company needs to refocus its attention on the basics such as
go-to-market effectiveness, relative cost position, and a clear understanding of the key market
segments (pg. 12). When it comes to marketing, the company determines the best market and
follows strictly renewable policies put by the joint players. Another critical thing for the company
to bridge the gap is identifying its key competitors from a technology standpoint. Through this,
the company's revenue will increase exceeding the current financial position.
Alternatives and Decision Criteria
Distance Between Canadian Solar and Countries:
When looking at the main countries Canadian Solar is focusing on, we must evaluate the distance
between the company and these countries before deciding which ones to prioritize. The most
important distance to acknowledge is administrative, Canadian Solar relies heavily of
governments for incentive programs and contracts. Therefore, if a country lacks government
policies or has political hostility towards solar and renewable energy then this is a huge issue for
Canadian Solar. The second important distance is geographical. Canadian Solar produces all its
products in China but wants to service countries all over the world. Shipping costs, trade
restrictions and accessibility between China and other countries is an important factor when
considering markets. The next important distance to consider is economic. The income available,
as well as cost and quality of infrastructure will impact Canadian Solar’s potential for success.
The least important distance is cultural. However, it should still factor in when making decisions,
especially if the country and citizens do not recognize the importance of renewable energy. The
CAGE model provides a good opportunity to determine the distance between Canadian Solar and
each country.
Cultural Administrative Geographic Economic
Distance Distance Distance Distance
Canada Small Small Medium Medium
China Small Small Small Small
Germany Medium Small Large to Medium Small
Spain Large Medium Large to Medium Medium
Italy Medium Small Large to Medium Small
France Medium Medium Large to Medium Medium
Czech Republic Medium Small Large to Medium Medium
South Korea Medium Medium Small Large
Japan Medium Small Small Medium
Unites States Medium Medium Medium Large
Cultural Distance: Canada and China have the smallest cultural distance for Canadian Solar as
these two countries are considered the main bases for the company. The other countries have
language and/or social norm differences, for example, the United States has the same language as
Canada, but they have been slow to prioritize renewable energy as a nation through their political
decisions until now.
Administrative Distance: Canada, China, Germany, Italy, the Czech Republic, and Japan all have
excellent government incentives and policies regarding PV solar and renewable energy. Both
Spain and South Korea have medium distance because of the caps put into place by the
governments. While France is medium due to slow administrative procedure and the United Sates
is medium due to the lack of federal incentive program available, however, some individual states
do have programs in place.
Geographic Distance: China’s small geographical distance is due to all of production taking place
here. While South Korea and Japan have small distance due to proximity to China. Canada and
the U.S. have medium distance due to the close shipping route through the Pacific Ocean.
However, the European countries have large geographical distance due to lack of water access
and long trip from China for shipping.
Economic Distance: The small economic distance in China is due to cheap labor and resources,
while in Germany it is because of the huge availability of financing and the solar industry being a
huge employer, and Italy is small due to the credits available for homeowners with renewable
electricity allowing solar to become much more accessible to consumers there. South Korea has a
large distance due to the devaluation of Korean currency and the United States has a large
distance from lack of financing available. While the countries that are medium are in between,
they have financing available but are more expensive for consumers and have higher costs
associated than small distance countries.
International Strategies
Multidomestic: When using a multidomestic strategy the goal is local responsiveness. Canadian
Solar would be able to minimize cultural distance from the various markets they want to pursue.
They would also be able to create stronger market and government ties which could ultimately
lead to more tenders and government contracts. However, when trying to respond to the local
market you must adapt your products. This creates higher costs and could lead to the company
having too many products or products that are too niche. Canadian Solar already has high
expenses; therefore, it is not feasible to add more than necessary.
Global: This strategy focuses on standardization and economies of scale. This would allow
Canadian Solar to have the lowest production cost possible, which would lower their expenses.
However, complete standardization of products may not meet all the demands, rules, or laws
regarding the solar industry in each country.
Arbitrage: Using an arbitrage strategy Canadian Solar can take advantage of different countries
competitive advantage, they can exploit the distances between their company and each country
they compete in or plan on competing in. This could also lead to a research and development
breakthrough, as they are using knowledge and resources for various countries. However, one
negative associated with this strategy is that is coordinated through function which could lead to
miscommunication and even lack of transparency within the company.
Options: Increase Allow us to Helps us with How much can Total
competitive
compete in strategic we minimize (out of
advantage?other objective? cost? 20)
markets?
Multidomestic 3 3 3 1 10
Global 2 3 4 5 14
Arbitrage 4 5 4 4 17
Recommendation: In the past, Canadian Solar have moved from the global to the arbitrage
strategy and we believe they should stay on this path. It provides them with greater
opportunities to minimize cost and compete in multiple markets as they had hope for. In addition
to this strategy, we believe the markets to be prioritized should be China, Canada, Germany,
Italy, Czech Republic, and Japan.
Implementation: For Canadian Solar to gain and maintain its competitive advantage, the first
thing they should do is restructure their finances better. They should put more focus into research
and development as well as marketing to gain technologies and processes that will be better than
the competition. Canadian Solar should employ an additional marketing position in every country
they operate in to get better understandings of those countries and how they should market their
products. Canadian Solar should continue to use their arbitrage strategy by focusing on exploiting
the distance they hold compared to other countries in the industry. They should put a bigger focus
on the key countries chosen from the CAGE model: China, Canada, Germany, Italy, Czech
Republic, and Japan. Furthermore, Canadian Solar should work on strengthening their
relationships with the governments of the countries they reside in as well as the producers of the
silicon they use. This industry is heavily volatile due to the changing laws and regulations in the
sector. Creating these stronger relationships will allow them to gain a competitive advantage as
other companies may not have the same upper hand as them. Canadian Solar should use a timeline
to implement these:
Year 1: Begin the hiring process of new marketing employees in each office to get a better
understanding of each foreign market. Rearrange financial structure to have a bigger focus on
research and development and marketing, especially in key countries. Begin the process of putting
more focus on key countries: China, Canada, Germany, Italy, Czech Republic, and Japan.
Year 2: Continue to improve R&D and marketing. Begin to gain and strengthen relationships
with silicon producers as well as governments of the key countries Canadian Solar is
operating in.
Year 3: Continue to monitor the market and other competitors, working on R&D to stay two
steps ahead of the competition. Continue to work on maintaining competitive advantage by
using the arbitrage strategy – exploit the distance they hold.
Contingency Plan: If Canadian Solar’s R&D is not improving as the years go on, they should put
more focus on marketing to get an upper hand on the competition (and vice versa). If in the
future Canadian Solar finds that they are financially limited, they should focus on countries that
yield the most profit as well as the most opportunity for future growth.
Case is attached separately if you want to look at it.
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CANADIAN SOLAR: Case Analysis

STEN 4980: Strategic Management

Teacher Feedback for my 2nd case I got 80%

In the final case, plan strategically first!

It will make your strategic analysis more effective and systematic.

Background & Key Issues

Case is attached separately if you want to look at it.

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