Christoph Forstner: Market Entry Concept of Solarcity

MARKET ENTRY CONCEPT OF SOLARCITYIN BRAZILChristoph Paul Forstner

Industry Analysis SWOT Analysis: TOWS Matrix Target Country Market Analysis Conclusion2

Market Entry Strategy

STRUCTUREMarket Entry Concept: SolarCity in Brazil

I. Industry Analysis

1. PORTER´S 5 driving forces

2. Specific Internationalization drivers

II. SWOT Analysis: TOWS Matrix

III. Target Country Market Analysis

1. PESTEL analysis: Environmental influences

2. CAGE framework: Distance analysis

3. Benchmarking: Main Competitor´s profile

III. Market Entry Strategy

1. Market attractiveness / competitive strength matrix

2. Short list of entry options

3. Scoring model: Evaluation criteria

IV. Conclusion

1. Summary: Best Market Entry Concept

2. Future Options

INDUSTRY ANALYSIS



INDUSTRY ANALYSISSolarCity

founded in 2006, headquartered in San Mateo, California Founders: Peter Rive, Lyndon Rive and Elon Musk Designing, financing and installment of solar power systems number one residential solar installer in the U.S. (2013) Business partners: homeowners, businesses, NPOs, government Operates in 17 states in the U.S., more than 75 operations centers Revenue: 255,03 million; EBIT: 8,33 million; equity: 1.342.37 million (USD)

1SolarCity2finanzen.net



INDUSTRY ANALYSISPORTER´S 5 driving forces

Market Competitors

New Entrants

Buyers

Substitutes

Suppliers

New Entrants (LOW)- High entry barriers- Huge R&D investments- Economies of scale

necessary

Power of Suppliers (LOW)- High number of potential

suppliers- Backward integration

Buyers (MEDIUM)- No brand loyalty- Very price sensitive

Rivalry (MEDIUM)- Strong competition among few

competitors - Few companies that make profits

Substitutes (MEDIUM – HIGH)- Fossil fuels, wind power etc. - Other resources (nuclear power)

are still cheaper- Traditional energy sources do not

generate income

3WikiSolarCity




Rivalry among existing competitors- Strong competition among few competitors due to high innovation pressure- Few companies that make profits

Threat of new entrants- High entry barriers- Huge R&D investments- Economies of scale necessary

3WikiSolarCity




Power of Suppliers- High number of potential suppliers- Backward integration

Power of Buyers- No brand loyalty- Very price sensitive

3WikiSolarCity




Substitutes- Fossil fuels, wind power etc. - Other resources (nuclear power)

are still cheaper- Traditional energy sources do not generate income

3WikiSolarCity



INDUSTRY ANALYSISSpecific Internationalization drivers

Market drivers

Competitive drivers

Government drivers

Cost drivers

Market drivers- Favorable conditions for the

production of energy- Market not saturated at all- Poor competition

Cost drivers- Competitive advantages

through potential cost leadership

- Labor market: Lower wages than in the US

Government drivers- Support from the

government- Possible reduction of

import taxes

Competitive drivers- Low threat through

strong competitors- Advantage through

economies of scale- Full service offering

4bridges-to-brazil.com



INDUSTRY ANALYSISSpecific internalization drivers

Market drivers- Favorable conditions for the production of energy- Market not saturated at all- Poor competition

Cost drivers- Competitive advantages through potential cost leadership- Lower wages than in the US





Government drivers- Support from the government- Possible reduction of import taxes

Competitive drivers- Low threat through strong competitors- Advantage through economies of scale- Full service offering





Conclusion

We believe that Brazil is a very interesting market for foreign entrepreneurs to invest in photovoltaic energy. The time to build and strengthen business relationships in Brazil could not be better. Sun-kissed Brazil has one of the highest solar radiation factors in the world and plenty of land for solar farms, plus large reserves of silicon, used to make solar panels.


SWOT ANALYSIS: TOWS MATRIX

Industry Analysis SWOT Analysis: TOWS Matrix Target Country Market Analysis ConclusionMarket Entry Strategy14

SWOT ANALYSIS: TOWS MATRIXSWOT Analysis

Strenghts

- Large financial Resources- High Technology - Backward integration & Economies of scale- Integrated full value chain process- Large customers & strategic relationships

Weaknesses

- High dependence on government subsidies- Not yet profitable- High costs for acquiring customers- Customers may not pay - Limited knowledge of recycling

Opportunities

- Expand internationally- „Trend to be green“- World runs out of oil- Manufacturing costs of panels fall- Few competition in Brazil- Knowledge Spillovers through new markets

Threats

- Low-cost competitors from China- No brand loyalty- Improving technology of other renewable

energy sources- Shareholder might lose trust

5WikiSolarCity


SWOT ANALYSIS: TOWS MATRIXTOWS Matrix

S W

O

- Multiply cost savings through economies of scale and falling manufacturing costs

- Use large financial resources to expand internationally

- Economies of scale, a full service chain process and economies of scale enable competitive advantage in Brazil

- Use „Trend to be green“ to decrease customer acquiring costs

- International expansion reduces dependance on subsidies in the U.S.

- Knowledge spillover from international workers should help at recycling issue

T

- Use full service chain as USP- Large investors bring back trust to

shareholders- Integrate other renewable energy systems in

portfolio

- Recycling programms must be installed- Trying to be independent of subsidies- Care about existing customers to generate

brand loyalty (word of mouth advertising will then reduce costs for aquiring new customers)

TARGET COUNTRY MARKET ANALYSIS


TARGET COUNTRY MARKET ANALYSISPESTEL analysis: Environmental influences

SolarCity

P

E

S

T

E

L

Political- Stable government- Potential solarpower

support in future

Economical- High growth potential- Stable currency- Low labor costs (own

manufacturing facility?)

Social- Economic inequality- Growing middle class that

can afford solarsystems

Technological- Weak tech. infrastructure- Improving IT sector

Ecological- Numerous ecosystems- People are aware of their

environment (good reputation of green companies)

Legal- High taxes- Corruption

6pestleanalysis.com



Political- Stable government- Potential support through subsidies in the future

Economical

- High growth potential- Stable currency- Low labor costs

6pestleanalysis.com



Technological- Weak technological infrastructure- Improving IT sector

Social- Economic inequality- Growing middle class

6pestleanalysis.com



Ecological (http://www.iesabroad.org/study-abroad/courses/rio-de-janeiro/fall-2013/es-bl-303)- Richest biodiversity in the world- Numerous ecosystems- People are aware of their environmental richness and green companies have a good reputation

Legal- High import taxes - Potential subsidies and support from the government in the future- Corruption

6pestleanalysis.com


TARGET COUNTRY MARKET ANALYSISCAGE framework: Distance analysis

Cultural Distance

Brazil- They speak Portuguese- Etnicity: white (include Portuguese, German, Italian, Polish) 55%, mixed white and black 38%, and others- Religion: Roman Catholic 82%- Family is the foundation of social structure and forms basis of stability for most people (Nepotism)

USA- English is spoken by about 82% of the population- Ethnicity: white 81.7%, black 12.9%, Asian 4.2% and others- Religions: Protestant 52%, Roman Catholic 24%, Mormon 2%, and others- Individualsm is prized

7Pankaj Ghemawat: Distance Still Matters8kwintessential.co.uk



Administrative and political distance

Brazil- Corruption- Institutional weaknesses, high taxes and bureaucratic burdens- Corporate tax rate 27.5%, sales tax rate 19%

USA- Head of country: president Barack Obama (Democratic Party)- Corporate tax rate varies from 15% to 25%- No national general sales tax (California: highest tax rate at 7.5%)

7Pankaj Ghemawat: Distance Still Matters

8kwintessential.co.uk



Geographic distance

Brazil- Air transport infrastructure is relatively well developed- Highway system is one of the largest in the world but badly maintained- Wealthy agglomerated areas as well as lagging areas- Size of country: 9.511.965 square kilometres, 200.4 million habitants, capital city: brazilia- Climate: mostly tropical, but temperate in the south

USA- 318.9 million habitants- U.S. transportation infrastructure requires substantial capital investments- Border Countries: Canada, Mexico


8kwintessential.co.uk



Economic distance

Brazil- Brazilians prefer face-to-face meetings, the individual is more important than the company- GDP per capita: 11.208 USD- GDP: 2.2 billion USD

USA- “time is money”- GDP: 16.77 billion USD- Unemployment rate: 5.4%


9nationsencyclopedia.com


TARGET COUNTRY MARKET ANALYSISBenchmarking: Main Competitor´s profile

SolarWorld AG, headquartered in Bonn (Germany), was founded in 1988 German solar trading company with own manufacturing facilities One of the largest solar companies in the world with worldwide locations (e.g.

USA, UK, Spain, Singapore, Japan) Their main production facilities are located in Freiberg (Germany)

as well as in Hillsboro, Oregon (USA) The company employs 3.400 people worldwide SolarWorld AG offers integrated solar value chain process

10Solarworld


TARGET COUNTRY MARKET ANALYSISBenchmarking: Portfolio Comparison

SolarCity- Custom designs and installation of solarsystems- Free energy efficiency analysis (how to save energy?)- Offers 4 different financing solutions (from leasing to purchasing) - 24/7 system monitoring (up to 30 years) and repairs at no added cost- Own solar panel production facilities (backward integration)

SolarWorld- PV plant design and monitoring- Free system insurances- Full integrated service chain- Own solar panel and inverter production facilities 11greentechmedia.com

12marketwatch.com


TARGET COUNTRY MARKET ANALYSISBenchmarking: Key Company Figures)

SolarCity - Leading U.S. residential solar installer in 2014- 34% market share in USA (residential solarsystems)- Sales in 2014: 255,03 million USD- EBIT: 8,33 million USD- Equity: 1.342,37 million USD

SolarWorld- 5% market share in USA (residential solarsystems)- Sales in 2014: 573,38 million € (255,0 million € in the US)- EBIT: 64 million €- Equity: 238,67 million € 11greentechmedia.com

12marketwatch.com


TARGET COUNTRY MARKET ANALYSISBenchmarking: Key Company Figures

Criteria Weight SolarCity SolarWorld

Brand reputation 0.10 4 3

Product Quality 0.15 4 4

Technology Standards 0.10 5 5

Full service chain 0.10 5 4

Low Price 0.20 4 3

Product Variety Range 0.10 2 3

Advertising 0.10 2 2

Customer Service 0.10 4 3

CSR 0.05 3 1

Weighted overall competitive strength scores 1.00 3,75 3,1

11greentechmedia.com12marketwatch.com

MARKET ENTRY STRATEGY


MARKET ENTRY STRATEGYMarket attractiveness / competitive strength matrix

Attractiveness Measures Weight Attractiveness Rating

Weighted Score

Market size 0.20 4 0.80

Market growth 0.20 5 1.00

Buying structure 0.10 3 0.30

prices 0.10 2 0.20

Buying power 0.05 3 0.15

Market access 0.05 2 0.10

Competitive intensity 0.10 4 0.40

Political / economical risks 0.10 2 0.20

Tax burdens 0.10 1 0.10

Weighted overall competitive strength scores 3,25

ConclusionColombia is a very attractive market because there are no fine steak houses and the costs and the risks are relatively low



Competitive strength measures Weight Attractiveness Rating

Weighted Score

Local experience 0.10 2 0.20

Market knowledge 0.10 4 0.40

Quality of local network 0.15 2 0.30

Products fit to market demands 0.25 5 1.25

Supply Chain Network 0.10 3 0.30

Economies of scale 0.05 5 0.25

Full Service Chain 0.10 5 0.50

Cost advantages 0.15 5 0.75

Weighted overall copetitive strength scores 3.95

ConclusionAlthough there is no real competition in columbia at the moment you should establish quickly the brand name and the image of your company because competitors will follow



COMPETITIVE POSITION

MARKET ATTRACTIVENESS

BRAZIL

Invest

Selective strategies

Divest


MARKET ENTRY STRATEGYShort list of (top three) entry options

1. Franchising - Minimum risk and quick market entry- Only small profits through franchise fees- Quick geographical coverage in Brazil possible- Potential returns from marketing may be lost- Control over business and technology use is weakened

2. Subsidiaries- Control remains completely at SolarCity- No „sharing“ of profits necessary- Higher costs but potential utilization of economies of scale- Higher market entry burdens

3. Joint Venture- Fast market entry through strategic

networks of partner- Knowledge spillover possible- Brazil partner is aware of political and

legal risks- Existing client base of partner- Reduced costs of market entry through

venture capital of both sides- Less profits


MARKET ENTRY STRATEGYScoring model: Evaluation criteria

Criteria Importance of the criteria

Options

Franchising Sub-sidiaries

Joint Venture

Control over marketing 2 2 4 1

Control over after-sales service 2 2 4 2

Required financial resurces 3 4 2 4

Requires management resources 1 3 2 3

Production costs 3 4 1 3

Custom duties to be paid 2 4 1 3

Flexibility to switch entry modes 1 2 3 2

Access to distribution channels 2 4 2 4

Risk of knowledge dissemination 3 1 4 1

Overall evaluation 59 46 49

Scores: 4=very positive, 3=positive, 2=negative, 1=very negativeImportance of the criteria: 3=high, 2=medium, 1=low

CONCLUSION


CONCLUSIONSummary: Best Market Entry Concept

Factors- First high class steakhouse in columbia- Increase the geographical coverage

Strategy- Franchising

- 19 franchise restaurants allredy exist- Brings an income of $12.0 million for the

company- No developing of a business concept incl.

use of trademarks Risk

- Less customers because of a high price

ConclusionFranchising is on of the best options for rapid market expansion. It works well for Ruth´s because they have a repeatable business model that can be easily transferred into other markets. The business model of Ruth´s is very unique and has strong brand recognition that can be utilized internationally and secondly it worked out well already in 19 restaurants.


CONCLUSIONFuture Options

Expansion strategy nationwide or internationally

Focus on sales and profitability through marketing, cost control, monitoring of financial statements and quality control

Improvement of customer service and quality improvement through streamlined preparation and presentation

Creating and adding new services like private dining

Increasing the intensity of marketing and sales activities through websites and social media

Industry Analysis SWOT Analysis: TOWS Matrix Target Country Market Analysis ConclusionMarket Entry Strategy

Sources

1SolarCity: http://www.solarcity.com 2finanzen.net: http://www.finanzen.net/bilanz_guv/SolarCity 3WikiSolarCity: https://sites.google.com/site/wikisolarcity/home/chapter-3/the-five-forces-model 4bridges-to-brazil.com: http://www.bridges-to-brazil.com/en/solar-energy 5WikiSolarCity: https://sites.google.com/site/wikisolarcity/home/internal-analysis/the-swot-analysis 6pestleanalysis.com: http://pestleanalysis.com/pest-analysis-brazil-shows-high-potential-growth/ 7Pankaj Ghemawat: Distance Still Matters: the hard reality of global expansion 8kwintessential.co.uk: http://www.kwintessential.co.uk/resources/global-etiquette 9nationsencyclopedia.com: http://www.nationsencyclopedia.com/economies/Americas/Brazil.html 10Solarworld: http://www.solarworld.de/ 11greentechmedia.com: greentechmedia.com/articles/read/Here-Are-the-Top-Five-Residential-Solar-Installers-of-2014 12marketwatch.com: http://www.marketwatch.com/investing/stock/scty/financials

38

http://www.finanzen.net/bilanz_guv/SolarCity



http://www.bridges-to-brazil.com/en/solar-energy

http://www.bridges-to-brazil.com/en/solar-energy

https://sites.google.com/site/wikisolarcity/home/internal-analysis/the-swot-analysis

https://sites.google.com/site/wikisolarcity/home/internal-analysis/the-swot-analysis

http://pestleanalysis.com/pest-analysis-brazil-shows-high-potential-growth/

http://pestleanalysis.com/pest-analysis-brazil-shows-high-potential-growth/

http://www.kwintessential.co.uk/resources/global-etiquette



http://www.solarworld.de/

http://www.solarworld.de/

http://www.greentechmedia.com/articles/read/Here-Are-the-Top-Five-Residential-Solar-Installers-of-2014

http://www.marketwatch.com/investing/stock/scty/financials

Christoph Forstner: Market Entry Concept of Solarcity

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