Introduction
Porter’s model of competitive advantage plays an integral role in informing companies on their competitive power and how to position themselves to achieve large market shares. The five force analysis proposed by Michael Porter can help companies identify the influence of external factors and entities in their business environment. Porter identifies five forces: buyers’ bargaining power, bargaining power of suppliers, the threat of new entrants, the threat of substitute products or services, and rivalry among existing competitors (Porter 1980). Vesta is one of the largest manufacturers of wind turbines in the world and continues to develop constantly. The company operates in many countries such as Denmark, Germany, the United States of America, and the United Kingdom. The five forces analysis will help to understand Vestas’ competitiveness in terms of its strategy and its competitive advantages. Therefore, this work focuses on studying the position of the company in the Japanese Wind energy market and the impact of the collaboration with Mitsubishi on the success of its activities.
Porter’s Five Force Analysis of Vestas’ Business Background
Competitor Rivalry
Vestas face stiff competition and rivalry from its competitors in Japan’s wind energy market and the global energy market. Competitors such as Titan Wind Energy, Nordex, Siemens Gamesa, and Goldwind are manufacturing and installing wind turbines. For example, Siemens Gamesa has recently expanded its offshore wind segments, thus putting up an aggressive competition with Vestas (Lacal-Arántegui 2019). According to an analysis conducted by Lacal-Arántegui, both Vestas and Siemens Gamesa are projected to surpass the 200GW mark by 2029 (Lacal-Arántegui 2019). Nordex and Goldwind are set to also rise in similar positions due to the emerging expansion in the areas of offshore wind projects. According to Lacal-Arántegui, such competition has resulted in levelized costs of energy targets, which demands that the competitors aim higher in their energy output (Lacal-Arántegui 2019). Many organizations in the turbines industry aim to produce the 15MW-plus turbines to stay in the competition. The competition in similar products in the same industry intensifies the rivalry and may instead reduce the value created by the organizations. Buyers’ bargaining power is a force in this environment because many companies exist in Japan’s wind energy market.
Bargaining Power of Buyers
The bargaining power of buyers is a significant element of competitive strategy for a Vestas company. Porter suggests that the customers can use their discretion and power to control pricing and demand for goods and services (Porter 1980). The consumers of clean energy are increasing in Japan’s energy market and thus translates to strong bargaining power. Moreover, consumers have more bargaining power when they dominate the business environment relative to the competing organizations. As a result, Vestas is obligated to differentiate their products to compete favorably with other organizations. It must be noted that the company has not lowered its prices for a long period of time, which is considered a positive dynamic as the competition is quite acute. In addition, a strong bargaining power by the consumers transfers rivalry to the competitors in the business and environment. Therefore, Vestas can implement more strategic planning in the field of communication and connection with customers, which will create more loyalty and trust.
Bargaining Power of Suppliers
Further, Porter identifies the position of suppliers in the competitive strategy. Suppliers of wind turbines inputs, installation materials in onshore and offshore industry have great impact on the market. This aspect can help shape the prices of various inputs and thus control the demands of competing organizations. Powerful suppliers can negotiate favorable terms and solicit more benefits from the competing entities. A strong supplier bargaining prowess, in turn, lowers the industry’s profitability, as discussed by Porter (Porter 1980, 27-28). The wind power market, in which Vestas operates, is relatively small globally, thus translating to a small supplier base. This fact increases the competition among the competing entities within an industry. For example, when few suppliers of turbine rotors negotiate better terms with which the Vestas, it is bound to comply. As a result, entities intensify their competition to win suppliers to their side. Having a few suppliers in an industry with solid bargaining power result in a heightened completion in that industry.
The Threat of the New Entrants
Subsequently, Porter discusses the significant threat of new entrants into an industry. The business environment has visible domineering entities. The emergence of new entrants into the industry tends to break the monopoly and thus result in intensified competition (Porter 1980, 7-9). The new entrants do not present a serious threat to the Vestas organization because it is well established in more than 84 countries. Moreover, entering the wind turbine market can cost much money, which prevents it from the appearance of many new competitors. However, the new entrants in Japan’s domestic market may be potential threats since they can scale down the prices of goods and improve their product quality to attract more customers. The threat of new entrants increases with their capabilities in the industry and presents in the form of limiting distribution channels and the cost of building competitive brands. However, if there are well-established organizations in the industry, the threat posed by the entrants reduces.
The Threat of Substitute Products or Services
The threat of substitute products or services forms another force because they give alternatives to the consumers. When an alternative product or service effectively suffice the customers’ needs, competitors in the same industry lose profitability. Porter discusses that the substitute product is a threat, especially if the customer’s cost of transitioning to the substitute product is relatively low (Porter 1980). As for Vestas, there are several alternatives that can replace wind tribune. At the same time, it is important to note that this type of energy extraction is the cheapest, which ensures a low level of threat of replacement. Porter suggests that organizations need to assess the potential substitute products and services to move on a similar trajectory.
How Vestas Maintains its Competitiveness in Japan Wind Energy Market
Vestas is a global partner in sustainable energy, having dominated the Japanese Wind Energy Market for some time. The organization has executed numerous projects as a pioneer in the renewable energy industry in Japan and has more than 136 GW of wind turbines in 84 countries (Vestas Annual Report 2020). Over the years, Vestas has maintained its competitiveness in the Wind Energy Market due to its consciousness of the trends and consumer needs in the industry.
Having operated in the onshore wind energy industry for a long, the organization has developed effective information systems, which are significant in its innovations. The organization is successful in using its industry-leading smart data, which helps predict, analyze and operate the wind resources in different locations for effective energy solutions. With its unmatched smart data capabilities, the organization has set up 117 GW of wind turbines in service of the industry in Japan (Vestas Annual Report 2020). As a result, the organization continues to establish highly effective joint ventures and collaborations with other multinationals in the Japan Wind Energy Market. The collaborations, coupled with timely data on the market trends, place Vestas ahead of its major competitors.
Position of Vestas in Japan Market and its Projects Driving its Success in Japan Market
Currently, the organization position itself top among the most successful ventures in the renewable energy industry in Japan and globally. The company also pays special attention to international policy and is engaged in the transformation of offshore wind energy projects. This transformation consists in the transition to renewable energy sources. The offshore wind projects position the organization top of most competitors in Japan and other parts of the globe. In 2021, Vestas acquired a Wind farm in Sumita Tono, Japan, which will host 113 MW of wind turbines (Vestas 2021b). The specialized location of the wind farm gives the company a significant strategic advantage. It consists in a certain tower location to facilitate transport accessibility. Moreover, it also has a positive effect on simplifying conditions such as seismic load and wind. Thus, these circumstances make it possible for this location to become a center for wind turbines with a capacity of more than four MW in Japan. This fact will significantly increase the use of new wind resources.
Offshore wind resources are stronger and more consistent than land-based wind resources, shifting more attention to such projects. While Vestas has been successful in the onshore wind projects, the organization projects high potential in the offshore wind projects. As a result, Vestas prioritizes joint ventures with other successful organizations in offshore wind energy projects. As many players in the market shift to 5-7 MW technology, Vestas also projects to innovate intelligent technologies to maintain its current competitiveness (Vestas Annual Report 2020). Besides, the organization has switched to using larger rotors for its turbines to expand the market share.
Collaboration with Mitsubishi
The collaboration of Vestas and Mitsubishi Heavy Industries Limited (MHI) is an important one. They have an active agreement to extend their partnership in the sustainable energy business from 2020 (Vestas 2020). The agreement allowed Vestas to acquire MHI shares while the MHI has gained 2.5 percent of Vestas shares (Vestas 2020). Majorly, collaboration comes when there is a clear need for organizational integration between the two. As a result, the top management of the Vestas projects that the collaboration would help them win in the offshore wind business as they have in the onshore (Vestas 2020). Besides, Vestas views the collaboration as a first step towards realizing partnerships in Japan’s wind energy and green hydrogen. The joint ventures would enable the two organizations to attain synergy in their competitive strategies and thus cement their competitive advantage. As of February 2021, Vestas assigned new roles to the selected senior leadership of MHI as the first step to full organization integration (Vestas 2020). The two organizations’ agreements yielded a joint venture known as MHI Vestas Offshore Wind embedded in shared culture, values of collaboration, passion, simplicity, and accountability.
Nonetheless, the two organizations have been in business since 2013, when Vestas first divested its Offshore business (Vestas 2020). The collaboration opens a new chapter in accelerating the rollout of renewable energy in the business environment. The joint venture is a clear competitive strategy, as discussed by Porter, because it cements the competitive advantage of participants. Vestas and MIH aim to dominate the wind energy market in Japan and globally with various Offshore wind projects. The trends in the wind energy business are fast transitioning from onshore to offshore wind for the renewable energy transition. The MIH Vesta Offshore Wind Energy is set to accelerate the innovation of the contemporary 15MW-plus turbines (Vestas 2021). Such innovations would lower the levelized energy cost for entities with offshore assets.
How to Understand Vestas Competitive Strategy
Vestas uses a differentiation method that emphasizes innovation and product quality improvement to expand market share and establish a competitive advantage. Through innovation in offshore wind power, the organization sets the foundation for new market exploitation and competitive advantage. The company leverages its wealth of smart data on the consumer market and uses the information to lead highly innovative projects in the wind energy industry. Differentiation strategy has been monumental in expanding the organization’s market share, having been successful in the onshore wind energy industry. Vestas would establish a substantial competitive advantage over its major competitors by extending its operations into offshore wind power projects. The organization aims to accelerate the development of sustainable offshore wind energy, which includes integrating renewable energy into Japan’s power grid. Besides, Vestas enjoy a higher market share in Japan and other countries globally due to its innovative capabilities.
The development of the wind energy market in Asia will contribute to Vestas prevailing among the competitors. According to IRENA Report 2020, Asia, particularly China, will continue to dominate the offshore wind power industry having more than 50% installations by 2050 (IRENA 2020). The joint venture with MIH is one of Vestas’s strategies to expand its competitiveness in Japanese wind energy. The synergy created from the venture has many impacts on shaping the offshore wind market as it moves towards creating more value in the industry.
The differentiation method, aligns to the value-based production and distribution model to enhance competitiveness. The model ensures value features in every stage of the production and distribution. The value-based model starts with outsourcing quality supplies that align with the costs in production. Subsequently, the manufacture and installation of turbines also undergo a rigorous quality assessment to ensure value features in the resulting stages. In addition, the organization also integrates value into the consumer services they offer as an effective approach to value-based operation. Creating value in outbound operations is a critical concern for an organization to maintain its competitiveness.
Customer experience through advertisements and promotions is one way of creating such value. Vestas produces and installs high-quality wind turbines to promote value in their services. As a leading global partner in renewable energy and the Wind Energy Market, the organization always yearns to promote quality and value in its operation. As a result, smart data allows top management to devise data-based solutions. The offshore wind energy projects in Japan are examples of the various data-driven solutions that the organization releases to the market. Besides, the organization also ensures that its products have value before touching on pricing.
Conclusion
Thus, this work aimed to study a company engaged in the production of wind turbines based on the Porter Five Forces model. In the course of the analysis, information was obtained on the strength of suppliers, bargaining power of buyers, and competitor rivalry. In addition, the threat of new companies and finding alternative organizations were studied. At the end of the study, it was concluded that Vestas is a fairly successful company that should continue to follow its policy while making some upgrades. For example, they should pay more attention to customers.
References
IRENA. 2019 “The Future of Wind: Deployment, Investment, Technology, Grid Integration and Socio-economic Aspects. (A Global Energy Transformation Paper).” International Renewable Energy Agency. Web.
Lacal-Arántegui, Roberto. 2019. “Globalization in the wind energy industry: contribution and economic impact of European companies.” Renewable Energy 134: 612-628.
Porter, E.M. 1980. “Competitive Strategy: Techniques for Analyzing Industries and Competitors.” The Free Press. E-book. p 4-357. Web.
Vestas Annual Report. 2020. Vestas. Web.
Vestas. 2020. “Vestas and Mitsubishi Heavy Industries Close Partnership agreement, and Senior Leaders from Joint Ventures take on new roles in Vestas.” Vestas. Web.
Vestas. 2021. “Vestas launches the V236-15.0 MW to set new industry benchmark and take next step towards leadership in offshore wind.” Vestas. Web.
-2021b. “Vestas Secures 113 MW wind Order in Japan with Customised tall tower solution.” Vestas. Web.