Christoph Forstner: Market Entry Concept of Solarcity

MARKET ENTRY CONCEPT
OF SOLARCITY
IN BRAZILChristoph Paul Forstner

Industry Analysis SWOT Analysis: TOWS Matrix Target Country Market Analysis ConclusionMarket Entry Strategy
STRUCTURE
Market Entry Concept: SolarCity in Brazil
2
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
SolarCity
 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)
4
1SolarCity
2finanzen.net

INDUSTRY ANALYSIS
PORTER´S 5 driving forces
Market
Competitors
New
Entrants
Buyers
Substitutes
Suppliers
5
 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

INDUSTRY ANALYSIS
 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
6
3WikiSolarCity

INDUSTRY ANALYSIS
 Power of Suppliers
 High number of potential suppliers
 Backward integration
 Power of Buyers
 No brand loyalty
 Very price sensitive
7
3WikiSolarCity

INDUSTRY ANALYSIS
 Substitutes
 Fossil fuels, wind power etc.
 Other resources (nuclear power)
are still cheaper
 Traditional energy sources do not generate income
8
3WikiSolarCity

INDUSTRY ANALYSIS
Specific Internationalization drivers
9
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 ANALYSIS
Specific 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
10

INDUSTRY ANALYSIS
 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
11

INDUSTRY ANALYSIS
 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.
12

SWOT ANALYSIS: TOWS MATRIX
SWOT Analysis
14
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 MATRIX
TOWS 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)
15

TARGET COUNTRY MARKET ANALYSIS

PESTEL analysis: Environmental influences
SolarCity
P
E
S
T
E
L
17
 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
18
6pestleanalysis.com

 Technological
 Weak technological infrastructure
 Improving IT sector
 Social
 Economic inequality
 Growing middle class
19
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
20
6pestleanalysis.com

CAGE 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
21
7Pankaj Ghemawat: Distance Still Matters
8kwintessential.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%)
22

 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
23

 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%
24
9nationsencyclopedia.com

Benchmarking: 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
25
10Solarworld

Benchmarking: 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
26
11greentechmedia.com
12marketwatch.com

Benchmarking: 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 €
27
12marketwatch.com

Benchmarking: Key Company Figures
28
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
12marketwatch.com

MARKET ENTRY STRATEGY
Market attractiveness / competitive strength matrix
30
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
Conclusion
Colombia is a very
attractive market
because there are no
fine steak houses and
the costs and the risks
are relatively low

31
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
Conclusion
Although 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
32
BRAZIL
Invest
Selective strategies
Divest

Short 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
33
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

Scoring 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
34
Scores: 4=very positive, 3=positive, 2=negative, 1=very negative
Importance of the criteria: 3=high, 2=medium, 1=low

CONCLUSION
Summary: 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
36
Conclusion
Franchising 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.

CONCLUSION
Future 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
37

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

Christoph Forstner: Market Entry Concept of Solarcity

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