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  • Published on: 14th September 2019
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Introduction

The renewable energy industry and more specifically the wind turbine industry has been seen as the solution for sustainable energy demand in the future. The environmentally friendly energy supply is based on wind power rendering its potential to be without limit. (Manwell et al, 2010)

Wind energy\'s potential is a sustainable approach to future energy providers across the Globe. Siemens AG production of renewable power is driven by its potential for future growth in order to enable profitability and reduce projection. The proposed solutions across the entire value chain aids customers to transform wind into a profitable asset for a sustainable future.

Siemens AG has had a market share of 63% of European offshore wind turbines in 2015 comparatively to 2011, year when Siemens Wind Power had 6.3% share of the world wind turbine market, and was the second largest in 2014.(Wilkes , 2010) In 2016 Siemens AG and Gamesa agreed on a 59:41 merger of their wind businesses. Third party analysis (Feng Zhou, FTI Consulting) suggested that Gamesa\'s strength in China and India and west pacific markets as a strategic asset for Siemens and their developments in the international energy market.

The energy industry is deemed by the Siemens company as a valuable asset to the company's multi structural complex and considering that with gradual increase in electricity consumption likewise grows the system's complexity (Siemens, 2011). The portfolio of efficient and innovative products in the area of of power generation and transmission adds to Siemens being the world's only manufacturer of products and key components for the entire power matrix (Siemens, 2011).

Considering economic potential of the market for Siemens, it stands in strategy to consider technological breakthroughs of energy efficient technologies such as the wind turbine market to potentially impact the manufacturing capacity of goods or lower the costs of energy, affecting in a significant manner the demand of energy and creating opportunities for consumers. (OECD, 2012).

Strategy of International Business

To better assess the landscape of political economy obstacles to energy system transition, in this paper we developed an analytical framework to understand the political economy of wind energy—a high potential source of zero-carbon dioxide electricity. Variables in political and economic organisations in the electric power sector influence key steps in wind deployment and integration, ranging from capacity planning to dispatch. It provides a basis for understanding how conflicts among actors over benefit, cost, and risk-sharing arise around the multiple functions that, taken together, create a stable and reinforcing set of incentives for renewable energy development and integration. (Hill, 2014)

Due to the importance of the offshore turbines in the UK market, those companies with an advanced offshore technology, Siemens, is in a better position to dominate the majority of the UK market. Among the risks in the wind power sector are political decisions on energy policy and subsidies/financial policy. The physical properties of wind energy—specifically, its variability, forecast uncertainty, and location relative to demand centres—create technical challenges for existing systems. Electricity systems have historically been designed to accommodate generation over which operators had greater certainty and more control. Accommodating wind requires revisiting established planning and operational procedures, challenging prevailing political and economic authorities under institutional arrangements. This political economy of transition is, in fact, an important barrier to renewable energy deployment and more broadly to climate policy. It is an often- overlooked part of research on low-carbon energy systems.

Siemens is an efficient wind turbine supplier due to longest experience and reliability in the industry, and excellent skills in delivering offshore projects. To differentiate itself from any other offshore wind turbine supplier Siemens offers equipment for the entire energy value chain, from the wind turbine to net conversion, efficient feed-in to smart energy grids, and power distribution (Siemens, 2011). Still to better understand successful performance of Siemens in offshore market for wind turbines it is important to review the company's history and analyse its operation strategy for that business sector in particular.

Siemens' strategy for successful operation in offshore wind power is to be “simply the best” in the industry, specifically focusing on three core areas: turbines, installation process, and provided service. As for turbines, the 3.6 MW type designed by Siemens is today in fact considered the standard for offshore projects (Siemens, 2011). Applying best technology over the years, Siemens' turbines have set the standard for robustness and reliability. The firm manufactures its wind turbine blades cast in one piece in a closed process, thus leaving no weak points at glue joint and providing optimum quality (Siemens, 2011). Such design is also claimed to offer maximum energy extraction from any available wind resource.

Despite developments in Europe and the targets Siemens faces in relation to their delivery of wind power energy the company has made promises to build together with its local partners, Orascom Construction and Elsewedy Electric, a modern power plant construction by connecting the first 4.8 gigawatts (GW) of new capacity to the grid in only 18 months after the signing of the contract for the company\'s biggest single order ever. When completed, each of the three power plants, located at Beni Suef, New Capital and Burullus, is set to become the biggest gas-fired combined-cycle power station in the world. Altogether, the three power plants will have a combined capacity of 14.4 GW.

Clusters in the Siemens AG value chain represent high density networks in foreign markets. Currently based in China, the US and Denmark, Siemens represents the fourth top presence on the renewable energy market. As many Multinational Enterprises , Siemens faces the global integration with presence across continents. (Hill, 2014)

Entry strategy and Strategic Alliance

Being the first and being confident in its business success gave Siemens competitive advantage in the market. As it has already been mentioned, a big success was installation of the world's first offshore wind farm in Vindeby, Denmark, in 1991, still available in operation today. 12 years later Siemens had installed the world's largest offshore wind farm at the time using megawatt-class turbines. In 2009 Siemens had installed a single wind farm with the highest capacity over 200 MW. Later in 2012 Siemens began construction of the biggest offshore wind power plant with total capacity over 500 MW, and the world's first 1 GW project. Thus, by covering more than 2 GW of installed offshore capacity and high order intake Siemens confirms its leading position in offshore market for wind power technology since the establishment of the first offshore wind farm (Siemens, 2011).

Siemens has done likewise, by creating a complete knowledge programme (Siemens, 2010). Through this programme, Siemens stores as much information as possible about consumers, suppliers, markets, competitors, and employees. There is also a knowledge department, which carries out various field studies, in order to get to know what other people know. Via this way, Siemens tries to extend and map the explicit knowledge (Knowledge Management Best Practices, 2016). Furthermore, Siemens tries to make tacit knowledge explicit, by writing lengthy procedures and manuals. Moreover, by using focus groups and brainstorm sessions, both in and outside the company, Siemens tries to get to know important tacit knowledge from outside the company (Siemens, 2010).

Siemens, is active in industries where the power of buyers is relatively high. Not many competitors have the same procedures as Siemens, but rather a large pool of customers, e.g. governments and other large companies. Contrarily, the bargaining power of suppliers is low. There are numerous raw material and semi-finished product suppliers, who all compete for a small pool of competitors and Siemens. Furthermore, As the technologies are sophisticated, and the capital requirements for most industries is rather high, the barriers to entry is high as well. Internal rivalry in the industry is very high as well, as competition is much limited to a handful of companies. Lastly, the threat of substitutes is moderate on average. (Chandresh, 2014; Siemens, 2015a, 2015b).

According to Porter's Five Forces model, weak bargaining power of buyers makes an industry less competitive, however increases profit potential for the seller. When speaking of the electricity market alone, majority of buyers are quite diluted incapable of integrating backwards in order to produce current commodity themselves. Moreover, buyers of the following product are considered price insensitive since electricity demand is constant. In terms of substitute products available on the market, it can only refer to different sources of electricity generation allowing customers to choose a preferable source. However, buyers will not stop purchasing this commodity in case electricity is generated from unfavourable or unsustainable source due to overall increase for electricity demand and instability of supply. Therefore, bargaining power of electricity buyers is relatively low, what makes the industry more attractive, but still weak in terms of competition.

International Trade Theory and Globalisation

In the last decade, Siemens has gained a power position in the international market of renewable energies. The first rotor blade manufacturing plant based in Canada and China and the nacelle production based in the U.S.A (Kansas) have been the direct investment of the company into international markets (Siemens, 2010). The prediction of growth rates in the wind turbine market and the recent economic developments caused by recent investments   have determined Siemens to expand their business with a 150 Million Euros into the company's centre in Aalborg and Brande (Miller, 2013). The company has also expanded the headquarters based in Brande in order to accommodate the growing number of employees. (Siemens, 2011)

The effect of these investments as well as the wind power industry growth of more than 10 times since 2004 has been that in order to customise the strategy for the future of the industry, moving the wind power headquarter to Hamburg, Germany (Siemens, 2011).

The German major, Siemens Wind Power, dominates the offshore segment and is heavily entrenched in the British market, the world's main offshore wind farm market. The manufacturer claims that Siemens wind turbines provide 77% of the UK's installed and development capacity.

Siemens is pursuing expansion of its international manufacturing network with the construction of new plants in China and the United States. Last December, it opened its first rotor manufacturing plant in China (Shanghai) and another nacelles unit in Hutchinson, Kansas. It has also selected Tillsonburg as the site for its Canadian rotor manufacturing plant and announced the construction of new manufacturing sites in the UK, India and China, as well as a wind turbine component manufacturing joint venture in Russia. Siemens Wind Power views internationalisation as one of its key strategy priorities and within two to three years' time, Siemens will have 12 manufacturing units in 7 countries, to be as close as possible to its customers. It harbours the aim of entering the coveted top three wind turbine manufacturer circle.

Last December, the company announced sales of 2 900 MW during 2010 (in the twelve months from October 2009 to September 2010) and the creation of around 2 500 jobs around the world in 2011. At the end of 2010 its order book stood at over 10 billion euros. Many of these orders are for sites outside Europe. In December 2010, Siemens clinched its biggest-ever onshore wind turbine order. American utility, MidAmerican Energy, ordered 258 wind turbines rated at 2.3-MW for various sites in Iowa for a combined capacity of 593MW to supply electricity to 190 000 American homes.

Siemens is working in partnership with electricity company Dong Energy on technology developments, primarily on the prototype of a 6-MW offshore wind turbine and its direct drive technology.

PESTEL Analysis Siemens Wind Power

Political

Political factors always have great impact over the macro-environment in which the business runs, so multinational companies need to do research on political environment before their international marketing planning. Siemens is doing well in evaluating political risk before it enters a new market. It is lucky for it that German government has steady relationship with a number of countries. Siemens often need to evaluate the historical relationship between countries that would benefit or do harm to its business. The influence of communities or unions for trading is also in its consideration. For example, trade barrier is also implemented in different firms of local laws. If necessary, a report regarding the political risks needs to be completed before its international marketing (Bell, 2001).

Economic

The economic situation in destination countries, the impact of currency fluctuations on exchange rates, the development of local market, the local market structure (Barney, 1996), the local human resources and the predisposition of local consumers are all very important issues for Siemens to consider (Bierly,1996).

The global economy just experienced the financial crisis; Siemens\' business in most countries also experienced a downturn. Another problem is that, together with the financial crisis is the tightened credit system for Siemens, which brought a lot of trouble to its business.

The highlight is that some new markets such as the China market are still growing fast and these new markets provide good opportunities for Siemens\' revenue generation. From economic perspective, Siemens has got steady financial performance in the recent years.

Social

The cultural difference is often a tough problem that all the muti-national companies have met with (Choi, 2000) . Culture, religion and society are of great importance to us. Will and how the local cultural differences affect Siemens\' business should also be evaluated.

One of Siemens\' strategies is Diversity as a factor of success. Siemens is promoting diversity in the management ranks of the company to a greater degree than ever before. In the year 2008, Siemens applied the strategy of diversity into organizational structure. Siemens created the position of Chief Diversity Officer. Besides, the brand image of Siemens is very good and also means high quality by many purchasers (Davenport, et, 2000), which is one of Siemens\' advantages from the social perspective.

Technological

Siemens still have great technological advantages in its professional fields and it is still holding an advanced position in the international competition.

However, in some countries where governments are not willing to afford high cost of new equipments, some smaller companies gained advantages over Siemens. For example, smaller companies like First Solar (FSLR) are more viable than Siemens as their technology becomes cheaper.

Environmental

With increasing attention from all countries in the world on global warming and with greater environmental awareness, environment is becoming a significant issue for muti-national firms to consider (Michael, 2003). The growing desire to protect the environment is having a great impact the industry. More environmentally friendly products and processes are in urgent demand. All of these external factors can bring good business opportunities for Siemens.

Legal

The Waste Electrical and Electronic Equipment (WEEE) Directive of the European Union (EU) makes producers of electrical and electronic goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. The Waste Electrical and Electronic Equipment Regulations 2006, which implement most aspects of the WEEE Directive, came into force in 2007 in most Europe countries. Several product divisions of Siemens are subject to the WEEE regulation (Hofee, 2003).

The organisation of International Business

Developments cross major advanced economies, in particular the case in question, The United Kindgom has faced deceleration in growth in 2016 to 1.6 percent reflected by renewed policy uncertainties, weak external demand, and subdued productivity growth according to WorldBank(2017) . Activity is expected to regain some momentum in 2017-19, but uncertainty associated with the United Kingdom's decision to leave the European Union (Brexit) could significantly influence the growth trajectory of many advanced economies. Growth projections for 2017 and 2018 have been revised down for the Euro Area and, especially, for the United Kingdom. (World Bank, 2017)

The Brexit vote had limited short-term cross-border financial market spillovers, partly reflecting the commitment for further policy accommodation by major central banks. However, it will take time to resolve the uncertainty surrounding the future relationship between the United Kingdom and the EU, given the nature of the negotiations for international trade agreements, and the unusual complexity of the issues in this case. This, in itself, could set back longer-term growth prospects across the EU. The magnitude of adverse long-run effects will depend on the type of relationship that the United Kingdom will negotiate with the EU, as well as associated political and institutional risks.(HM Treasury 2016; OECD 2016)

Regional Economic Integration?

Electricity liberalisation that led to transition of European electricity market from natural monopoly to a market economy not only encouraged competition in the internal market, but also created opportunities for energy resources diversification and increased renewable energy commercialisation.

Increasing competition of European electricity market governments created feasibility for electricity sector to become more efficient, cost-effective in achieving environmental goals, and capable of responding to any future energy crisis by diversifying its energy supply. Electricity market liberalisation enabled households and enterprises of some countries freely choose their suppliers, thus increasing flexibility and competition, and subsequently promoting economic efficiency.

In 2010 the wind energy industry including both onshore and offshore contributed € 32.4bn to the EU's economy. According to the global drivers of energy sector, economic growth and structure of the Member States have direct influence on energy demand. Currently wind energy sector as a whole is capable of meeting 3.7% of EU's electricity demand, making wind technology the second largest contributor to economic activity and employment in the area of power plant manufacturing (EWEA, 2008). It has also been noticed that the wind industry sector has become a major industrial exporter, thus in 2010 reaching € 8.8bn in the value of exports (EWEA, 2008).

Siemens name is well-recognized and respected in the Offshore Wind Energy industry. The company has played a key role in founding the industry by installing the world's first offshore wind farm. All the turbines installed in this pioneering project are still reported to be in excellent condition, consistently operating at high availability. Providing on budget and on time project delivery, high availability project operation, optimised process across the complete project lifecycle, and offering expertise and over 20 years of experience in offshore wind power makes Siemens number one technology provider in offshore wind (Siemens, 2011).

Energy sector is a comprehensive part of Siemens' portfolio. Siemens is a well-recognized leading supplier of a broad product selection, solutions and services in the field of energy technology. Siemens believes that with gradual increase in electricity consumption likewise grows system's complexity (Siemens, 2011). Being able to offer its innovative and efficient products in the areas of power generation, power transmission and oil and gas production makes Siemens the world's only manufacturer with knowhow, products and key components for the entire power matrix (Siemens, 2011). As for the wind power, this business sector is a vital part of current Siemens' environmental portfolio.

Under new EU energy policy European electric utilities (from here on known as utilities or utility companies) are being forced to rebalance their portfolio, thus gradually increasing their share of overall purchased electricity with electricity generated from renewable technologies (Ernst & Young, 2013). It is obvious the primary customer making major purchases of electricity generated from offshore wind are utility companies, which afterwards distribute purchased electricity further on to other industries and private households. Utilities can also be engaged in generation and transmission of electricity, therefore their level of involvement on the electricity market holds significant influence on the OWE industry.

The biggest challenge in offshore market for wind turbines is great cost of energy generation. The gradual reduction of these costs can be achieved with optimisation in every stage of development, manufacturing, installation and operation processes (Edwards, 2011). Concern over reduction of LCOE is directly related to offshore wind industry's potential to compete against conventional energy sources as independent and mature industry. Siemens' introduction of its innovative DDT into wind turbines and quantum blade technology indicates the potential solution for cost reduction, however does not solve the issue of LCOE.

Speaking of installation processes, it is important to ensure availability of adequate vessels suitable for mounting of offshore wind turbines and its components. It is claimed that current wind turbine installation vessels provide the capacity that limits certain turbine design options. Bigger offshore wind farms consisting of numerous turbines will require vessels capable of carrying adequate amount of turbine parts to increase efficiency in installation process and tolerate fuel costs associated with amount of vessels used for installation of each wind farm. Currently there is also a shortage of vessels capable of installing cables, which slows preparation of wind farms for full operation. Furthermore, existing and new vessels are expected to become highly in demand by the oil and gas industry from 2015 to 2020. It is predicted that the planned peak for installation of offshore wind farms is likely to overlap with a peak in oil and gas decommissioning activity, what will probably be the tail end in construction of gas production platforms in the Southern North Sea (Edwards, 2011). Not only installation optimisation, but also technology optimisation is of significant concern. Composite technology for large machines is yet unproven, and therefore makes it impossible to optimise for large projects farther offshore (Musial, 2012).

Conclusion

Various models have been reported on, and although far for complete, it provides generally a good insight in the strategy and future of Siemens.

The industry analysed thoroughly through the SCP model and the Five forces, is the renewable energy market. It can be said that the entry and exit barriers are quite high, demand relatively inelastic, and a clear focus on quality rather than price.

On the other hand, Siemens is in several industries which are not profitable. Siemens could adapt a system like GE of divesting. Moreover, Siemens can learn from the structure of GE.

Recommendations

Siemens would be advised to investigate a divesting model, to get rid of unprofitable industries. Next to that, it is advised that they widen the span of control, and flatten the organization, in order to react faster to market changes, or to make business units more autonomous.

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