The potential return on investment, if given the economies of scale squired , could be lucrative and virtually unlimited. The current social trend in Japan and other developed economies of moving away from nuclear energy, combined with a realization that pollutants generated by more traditional fossil fuel energy sources has a long term detrimental effect on society, make the search for alternative energy sources a must.
Potentially harnessing the sun’s energy through photovoltaic technology, despite It still being in its infant stages, presents us with a potentially unlimited energy source and a potential lucrative long term Investment opportunity. 2012-2013 solar Industry Michelle Thatcher, National Director us-Green Chamber of Commerce on the 2012 began, but those that remain are becoming more consolidated and stronger. ” (Kaftans, 2012) Over the last few years we have witnessed a drive towards contamination within the solar industry.
Traditional leading companies from Japan and the US have slowly lost their market position due to the steady supply of lower cost products from China. Table 1: Ranking of Solar manufacturers based on total production. (blob. Compensatory. Co. UK, 2014) Figure 1: Ranking of solar manufacturers based on total production (blob. Compensatory. Co. K, 2014) As shown in graph 1, the rise of the Chinese solar manufacturers is quite clear, as is the decline in ranking of the US and Japanese manufacturers. This becomes even clearer when depicted in actual production fugues as depicted in table 2.
Table 2: 2013 Production of solar panels The solar industry is dominated by relatively few countries; China, the US, Germany, Japan and the I-J. These countries represent close to of the solar market. Any company that aspires to enter this industry needs to be fully aware of the size and supply chain challenges that these markets represent in order to be competitive in his industry. (Barker, 2014) The dominance of these 5 markets is clearly depicted in the graph below. Figure 2: Global demand shares by major market (blob. Compensatory. Co. K, 2014) Note that the Japan and the I-J market have a clear peak in the first half of the year. For Japan specifically this could be related to the fiscal year ending in March. When we look at the performance of the major solar industry players we can clearly see that this industry is still in its infant stage. With the exception of Sharp and Crockery companies from Japan, these two companies are conglomerates in its own rights and hush the financial do not provide a good ground for comparison, we can see that the operating costs for most companies still very much out way the revenue generated.
As the investment required for an upstream market entrance is very large, for the purpose of this document I will assume that we will look at entering into the downstream value chain. The downstream value chain consists of business opportunities in installation of solar devices, warranty servicing, maintenance contracts, etc. The downstream value chain is also the most competitive and the market with the lowest barrier to entry. Strategic analysis on the Solar Industry In this section I will provide an analysis of the solar industry using two models: 1 . Porter’s 5 forces 2. PEST (Political, Economic, Social, Technological)
The Porter 5 forces analysis is a framework that helps to analyze the level of competition within a specific industry or product segment. It uses 5 elements to industry is the supplier and the consumer is the buyer of solar cell technology and services. For simplicity I have left out the potential sales of excess electricity to the grid, although I am fully aware that this provides a significant upside. Threat of entry High As the solar market is still in its infant stage the downstream market, which lucrative profit margins is likely to attract either new players of midstream industry players coking for vertical integration.
Bargaining power of suppliers Japan uses a multi-tier wholesale model (Ted James, 2013), which keep pricing artificially high for consumers. Bargaining power of buyers Medium Due to Japan’s multi-tier wholesale model, the Japanese consumer currently pays prices which are significantly higher as compared to, for example, the US. However, a limited supply of rooftop space could present the buyers with an opportunity bargain during the vendor selection process as all suppliers are competing for the same limited rooftop space.
Threat of substitutes Although current social trends are not in favor of nuclear energy and fossil fuel produces too many pollutants under the Kyoto agreement. They should be taken into consideration as an alternative. Currently the cost of solar cell electricity is still significantly higher as compared to the aforementioned energy sources. Industry rivalry In search of economies of scale, there is likely to be a significant consolidation through take over or horizontal and vertical integration.
The investment cost still poses a significant cost which needs to be recuperated through increased sales and lower costs. This can only be done through increased economies of scale. PEST The PEST analysis looks at several influencer that could impact the industry performance. Political: Government incentives for solar energy (Ted James, 2013) National Feed-Len-Tariffs (FIT) Decrease the energy dependence / increase the energy independence Economic: Low interest rates; people will look for alternate investment opportunities for higher yield.
Cost; due to a contamination of solar systems the cost barrier is declining Social: Solar energy has a positive image Japanese consumer is actively shying away from nuclear energy after Fuchsia assister Booming solar industry can generate employment opportunities Technology: Technology is still in infant stage with tremendous growth opportunity Japan has strong presence in up- and midstream value chain (Sharpe, Crockery), which could help make the Japanese solar industry a technology leader through vertical integration.
