Vestas - Entering into the Small Wind Turbine Industry

1.0 Introduction

Vestas Wind Systems A/S (Vestas) is a pioneer in the global wind turbine manufacturing industry. With installations in over 63 countries, it is considered one of the market leaders in the industry today. However, in recent years, it has been losing market share due to the changing competitive landscape it operates in and hence, it is looking at new areas for growth. This report will begin by examining Vestas’s historical success; followed by an external and internal analysis to identify the key strategic issues it currently faces. With the key issues identified, including the opportunity of entering the Small Wind Turbine (SWT) industry, we will proceed to discuss the corporate and business level strategies it should undertake to capitalize on their strengths and possibly achieve a new sustainable competitive advantage.

1.1 External Analysis (PESTEL & Competitor Analysis)

1.1.1 Political & Legal

The growth of the renewable energy industry can be attributed to two key factors. The first is the establishment of key energy targets various countries had to adopt, following the Kyoto Protocol (UNFCCC) . The second was increased government spending and policies geared towards encouraging growth of the industry. As a first-mover, Danish company Vestas was in an excellent position to capitalize on this favourable environment. However, with a declining commitment of BRIC countries and other key industrialized nations such as the US and Japan to continue pursuing these energy targets, coupled with the unfortunate expiration of U.S. Production Tax Credit for Large wind turbine (LWT) by 2012 year end, the future of this industry is at best uncertain. (Tulloch, 2012)

1.1.2 Economical

Prices of crude oil and natural gas typically have a positive correlation with economic outlook. For example, economic crises in the past have caused spot prices of both WTI and Brent Crude to drop, rendering renewable alternatives less economically attractive and consequently lower growth rates. (See Exhibit 12 & 17) For big incumbent players like Vestas however, such impacts are largely mitigated since projects are mostly supported by government bodies who tend to remain committed with their funding and policies (UNEP, 2010). Furthermore, such economic downturns also mean lesser credit is available, soaring interest rates up and resulting in a reduced preference for riskier renewable energy investments, increasing difficulty for new entrants.

1.1.3 Social-Cultural & Environmental

The increasing trend towards renewable energy has been largely fuelled by concerns over rapid depletion of traditional energy sources, climate change as well as increasing awareness of the dangers of nuclear powered energy plants. Renewable energy methodologies