Executive Summary
This paper focuses on the Fist Solar Company and its response to the changing solar panel industry. The entry of cheaper silicon panels from the Chinese manufacturers flooded the market, creating instability. The market was also disrupted by the declining European market, which was greatly influenced by government strategies. The report focuses on the various factors that influence the decision-making process to ensure that Fist Solar remains competitive in the future. The market strategies addressed include the Porters 5 strategy and the Ansoff matrix. They involve the identification and creation of a competitive edge for the company in the future. The report recommends the adoption of market development and diversification strategies.
Introduction
First Solar has developed to become one of the largest manufacturers of photovoltaic (PV) solar panels in the solar power industry. With the technological production of the proprietary cadmium telluride thin-film, it became the first manufacturer to produce solar panels at the lowest cost (less than $1.00 per watt) in 2009. The company, however, in 2011, experienced a net operating loss of $39 million, which was primarily affected by broader trends in the solar panel industry. The Chinese manufacturer flooded the market with crystalline-silicon solar panels at a lower cost facilitated by their government subsidies. The market demand for the PV market was declining, whereas the cost for silicon raw materials was reducing. There was an increased supply of cheaper panels and a decreased demand for the cadmium telluride-based panels. To ensure that First Solar survived in the short term and long term, the manufacturer required to make the various decision strategically and systematically. The company needed to determine the maintenance of its competitive edges in cost and supply. Amid the evolution of the solar panel market, the creation of more extended strategic plans remains a viable alternative to allow success. The dependence on the heavily subsidized European markets was unsustainable, and seeking new markets for the demand for solar energy would be less dependent on the fluctuations of policies hence more sustainable.
Analysis and Discussion
First Solar Company requires an analysis of the factors that influence decision making in business in determining the successful growth strategies. Michael Porter developed five strategies that enable companies to pursue a competitive advantage by choosing the right approach. The model is highly applicable in cases of decisions regarding change or entry within a market and should be considered in the planning stage. The Porter Five Forces propose that five forces influence industries and the model can be used to understand the competitive landscape in the industry and determine where and how a firm should operate. The model involves the identification of the five critical competitive forces; new entrants threat, the buyers’ bargaining power, the suppliers’ bargaining power, substitute threat, and competition in the existing competitors in the industry. In analyzing the entry of new competitors, the company should determine the cost advantage, the access to distribution by the competitors, the existing barriers to entry, the proprietary products, and the expected retaliation from the current players. The entry into the solar panel market involves high initial costs in setting them up, but with the availability of government subsidies, the entry and establishment into the market are made easier. The analysis of the new entry into the market prepares the company for the changing players in the industry who have the potential to disrupt the market. The entry of Chinese manufacturers through government subsidies flooded the market, increasing the supply, which would eventually prompt a decline in prices. The bargaining power of the buyers’ analyses the position of the buyers, the existing volume of buyers, the brand identity, the substitutes available, and the market sensitivity to price changes. First Solar had gained ground for the European market, which proved to be unsustainable, and hence analyzing the buyers creates the opportunity to determine the best strategies in acquiring new markets and expanding the existing ones. The bargaining power of the suppliers determines the position of the sellers, current and potential suppliers, availability of substitute inputs, the input differentiation, and the volume of suppliers. One of the significant challenges experienced by First Solar was the emergence of the cheaper supplier of the silicon raw materials, which was accessible to the Chinese manufacturers. In addressing the suppliers, the company will realize the cost-effective alternative in taking up the product materials.
The threat of substitutes, analyses how easy the product can be substituted, how the products can be made cheaper, the switching costs, and the trade-offs of the alternatives. Fist Solar gained cost advantage through the production of the cadmium telluride-based panels. However, the emergence of the silicon-based panels made them cheaper due to the access to more inexpensive raw materials. The assessment of the substitutes ensures that the manufacturer determines the efficient materials in creating the products. The evaluation of existing competitors in the market includes realizing the strength of the existing competitors, diversity within the rivalry, the industry concentration, brand identity, and the fixed cost vs. value-added ratio. The manufacture of solar energy has proven to involve significant product differentiation and lowering the prices and hence the need to have the ability to examine the capabilities of the competitors. First Solar should be prepared in the potential market disruptions created by the existing players and how the competitors affect the price and purchase of their products.
The Ansoff matrix was developed to enhance strategic options for businesses. The matrix enables the managers to access four possible scenarios for the future market and matrix activities i.e., market penetration, market development, product development, and product diversification. Marketing penetration focuses on raising the sales volumes of the existing products to the current market of the company. The thin-film technology became less efficient compared to its competitors, and thus large-scale competition of utility projects would increase the scale of its sales. Defending the existing market share and growing the market is essential in determining the sustainability of the current market. First Solar had obtained a significant market share in the solar industry, and thus establishing and defending its market share would prove successful. Market development includes reaching new markets with existing products. The strategy focuses on extending the market through new market sectors and new geographical areas. Product development focuses on accessing the current market with new products. It involves the expansion of the product portfolio by creating and modifying products. Diversification consists in reaching new markets with new products that could be related or unrelated. The production of solar panels using cheaper materials i.e., silicon and accessing new markets, would lead to the realization of new market abilities for First Solar.
Recommendations
From the options matrix, this paper recommends First Solar two options that it can pursue to achieve strategic success i.e., market development and diversification. The European market for First Solar has proven unsustainable, and thus realizing new markets would enhance sustainability. Accessing a new market with different geographical areas buffers the solar panel market for the manufacturer from the effects of government interference, such as changing policies. The company was dependent on the European consumers whose demand was subject to government subsidies. The declining sales in Europe prompt the transition towards the new developing markets that would mitigate the impact of declining market demand. The Chinese manufacturers have gained a competitive edge above First Solar in producing cheaper solar panels. They have access to more inexpensive materials, which reduces the cost of production. Even though the thin-film technology was initially cost-competitive by providing more energy for less money, it was less efficient compared to its competitors. Strategic partnership with a Chinese company would lead to the achievement of new markets and new products which will allow market penetration easier. First Solar is already an established brand in the production of quality products, and thus its partnership with the Chinese company wouldn’t jeopardize its reputation. With the partnership, the company can conquer new markets easily at a reduced cost due to the integration of operations.
Conclusion
Competitive rivalry in solar panel manufacturing is intense, and if First Solar agrees to survive, they must seek strategic partners to succeed in the future. The dependence on the highly subsidized European market for the company is unsustainable, and thus creating new demand for solar energy in new markets would buffer global market fluctuations.
The development of solar technologies that are cost-efficient i.e., CdTe thin films, affects the market share of First Solar. Thus, to maintain its position, the company should put additional focus on accessing more resources that are cost-effective, providing the quality and efficiency of the product. Strategic partnerships will increase its market base