Vestas

A CASE STUDY ABOUT…

WHERE THE WIND MEANS THE WORLD.

ST R A T E G I C MA N A G E M E N T F I N A L R E P O R T 152112130 Pau lo A lves

OC T O B E R 2012

2

INDEX

03 Company’s Overview

04 1. Industry Analysis

05 1.1. Environmental Analysis

06 1.1.1. Macro Environment

06 1.1.2. Micro Environment

06 1.1.2.1. Clients

07 1.1.2.2. Competitors

08 1.1.2.3. Suppliers

09 1.1.3. Industry Attractiveness

10 1.1.4. Industry Structure

11 1.2. Organizational Analysis

11 1.2.1. Resources

12 1.2.2. Access to Scale, Scope and Experience economies

13 1.2.3. Strengths and Core Competencies

13 1.2.4. Strategic Fit

14 1.2.5. new SWOT Analysis

15 2. Strategy Formulation

16 2.1. Vision, Mission, Values

16 2.2. Objectives

17 2.3. Strategy and Strategic Dimensions

18 2.4. Corporate Governance

19 2.5. Product-Markets

21 2.6. Vertical Integration

22 2.7. Internationalization

25 3. Recommendations

28 4. Appendixes

32 5. References

3

COMPANY’S OVERVIEW

VESTAS

Vest

as w

ind

Sys

tem

s S

/A

YEAR FOUNDED Founded in 1898 but become known as Vestas only in 1945

INDUSTRY Vestas sells wind turbines all over the world in the B2B segment. The company competes in the energy industry which offers a large range of energy opportunities to a large variety of costumers.

HEADQUARTERS Aarhus, Denmark

SALES VOLUME (MILLION EUR) 5,836 in 2011

MARKET SHARE 12% - Market leader followed by Sinovel

CEO Ditlev Engel

STOCKS Public Held on the NASDAQ OMX Copenhagen

MARKET Sold in more than 30 countries into America, Europe and Asia Pacific. More than 50% of the revenues come from Europe.

EMPLOYEES More than 22,000 employees

4

1. INDUSTRY ANALYSIS

5

1.1.1. MACRO ANALYSIS 1.1. ENVIRONMENTAL ANALYSIS

PEST Indicator Forecast Causes Impact on the Energy Industry

Supply Demand

Polit

ical

Policies Improved macroeconomic policies. National Governs more transparent. More initiatives to leverage green thinking.

Vaster and freer flow of information, capital, goods, services and people.

+ Easier components, products and services exportation

Brand awareness increase + Potential for renewable sources of

energy

- Strait labor policies.

Living Standards Political pressures for higher living standards.

Greater social and ecological responsibility. Further countries becoming political democracies.

- Higher production costs + New potential costumers/ consumers

Econ

omic

Economies Growth The global economy is well positioned to accomplish a continuous period of growth.

Economic crisis is expected to recur. Asia will keep the fastest growing region, led by China and India, whose economies already comprise approximately one-sixth of global GDP. USA are expected to avoid recession already in 2012.

+ New potential markets for energy companies. Asian market seems

very attractive. +

The economic growth increases the power purchase of the population mainly from

merging economies.

Inflation Disinflation is expected for the next few years in a global context. Although the changes will be minimal.

In one hand, in the developed countries it was a measure imposed by the central banks. This result was achieved by injecting liquidity in the economy. On the other hand, in the developing countries it is result of the moderation in global commodity prices and lower global growth.

+ Cheaper components and raw materials +

Disinflation expectations lead the costumer to delay the purchase. However, this

impact is not expressive in the energy segment because the

consumption is not really affected by this trend.

Average Income

Overall GDP per capita will increase. Forecasts tell developed countries will keep the higher numbers. Although merging economies are faced with an huge expectation for middle class increasing.

Stagnant population growth in developed countries. Emerging economies will keep leading the economy growth worldwide.

- Higher production costs +Increase on the need of supply

and consumption from costumers.

Consumption In general it will increase. Oil demand and natural gas demand will increase deeply

It is result of a vaster increase of population mostly in Asia. Asia will drive the expansion in the energy demand.

- Higher production costs

+

Rise of new consumers mainly emerging Asian middle class that want to acquire higher class behaviors and goods

dependent from energy supply + Potential for the supply from

renewable sources of energy

Soci

al

Population Distribution

By 2015 more than a half of the world's population will be urban. India, China and Japan will keep leading the population growth

Population growth mostly seen in emerging and Asian economies. + Easier distribution network

Shift of power consumption from developed countries to

emerging economies

Society Behaviors

Increased Healthcare, Security and Time Management concern. People will tend to be attracted for simplicity and effective performance goods.

Ageing Population. Healthy body and mind is becoming a new form of lifestyle. People search for comfortable and peaceful places. Global warming has caused people to think "green". Growing world complexity makes people search for simple and effective goods. Inflation, financial crisis and public/private debt are leaving people much more alert about opportunity costs.

- Higher production costs

Consumers become more demanding and selective about

quality of goods. Altough it doesn't affect directly the

energy industry. +

Potential for the growth of renewable sources of energy.

Today already a great amount of investment also from government are being made to develop this

technologies

Relationships Multicultural environment growth everywhere. Companies tend to have a closer interaction with employees

Easier flow of people through different countries. Greater social and ethic responsibility.

+ Higher standardization of textil

trends which reduces the costs of country adaptation

Consumer behaviors are more homogenius

Tech

nolo

gica

l

Communication Easier communication trough more channels

Huge investment on developing "social software" from a virtual network. + Cheaper and more effective

channels + Increased globalization of brand awareness

Distribution More, effective and advanced distribution channels

People tend to be more sedentary. Better producing performance. + Cheaper and more effective

channels

Development Progress on several matters within logistics Resource scarcity. More information. Increased ecological responsibility.

+ Lower production costs due to more efficient technology

+ Potential for renewable sources

development


6

1.1.2.1. CLIENTS Energy c l ients can be seen from di f ferent perspect ives. Below through a eight-cr i ter ia analysis i t is shown a correct v iew of these cl ients and al l the market segmentat ion opt ions.

C O S T U M E R S

WHO Transportation companies, Industries, Residencies and Commercial businesses

WHAT Energy from renewable or fossil sources

FOR WHOM Worldwide population

WHEN Everyday

WHERE All over the world

WHY Nowadays energy can be seen as a physiological need and this is because most of them depend on the existence of controlled energy. For example if a consumer needs to eat he also needs most of the times a source of energy to cook.

HOW MUCH Energy prices differ from each company and country’s energy price policy.

Regarding the goal of th is report where the most important th ing is to perceive the posi t ioning of Vestas f rom i ts direct compet i tors and since the company is engaged with the business-to-business sector i t would be more useful to segment the market by answering the cr i ter ia what and the cr i ter ia who. The two tables below show the di f ferent market segmentat ion for each cr i ter ia, which wi l l be developed further more.

PETROLEUM

COAL

RENEWABLES

Hydroelect r ic Power Wind Power Solar Power B iomass Geothermal

NATURAL GAS

NU C L E A R ELECTRIC POWER

More detai led informat ion about these segments is avai lable on the

industry at t ract iveness analysis.

2010 2030

TR A N S P O R T A T I O N

IN D U S T R I A L

RESIDENT IAL

COMMERCIAL

SEGMENTATION BY SOURCES (WHAT) SEGMENTATION BY SECTORS (WHO)

1.1.2. MICRO ANALYSIS


7

1.1.2.2. COMPETITORS Overlooking an important compet i t ive threat can be disastrous for the business. In th is report i t is possible to study the compet i t ion through four di f ferent levels to make sure no compet i tor is forgotten.

This study is represented by the product- industry hierarchy and i t can be seen on the picture below for the Vestas case.

ENERGY INDUSTRY

WIND POWER

BRANDS

RENEWABLE SOURCES INDUSTRY

PRODUCT CLASS

PRODUCT TYPE

PRODUCT VARIANTS

In al l th is levels i t is possible to assume direct and indirect compet i tors for Vestas. Al though for th is report only compet i tors f rom the deepest level of th is hierarchy wi l l be developed. I t means a product form compet i t ion, which includes services of the same product type.

The table below shows who are th is compet i tors and their speci f ic f ramework.

COMPETITORS SINOVEL GAMESA ENERCON GE ENERGY

COUNTRY CHINA SPAIN GERMANY USA

COMPETENCIES Entrepreneurship Price Expertise Diversification

STRATEGY

Long-term strategy of technological innovation,

localization, scale production, international expansion and

service integration.

Become a benchmark in the wind power industry by offering the lowest cost of energy, while

focusing on three vectors: Cost of Energy, growth and efficiency.

Constant sophistication of existing components, providing customers

with state-of-the-art products

Invest on innovative technologies that help customers to meet their challenges

in sustainable ways

OBJECTIVES

•  Open the first integrated base for the manufacturing, assembly, testing, ocean transportation and ocean installation service for large-size offshore wind turbines;

•  Open the National Energy Offshore Wind Power Technology and Equipment R&D Center.

•  Optimization of the Cost of Energy, focusing on improving turbine availability and reliability;

•  Strengthening its presence in target markets and stepping up sales efforts among utilities in central and northern Europe and in markets in Southeast Asia, Australasia, South Africa and the Middle East. To do so, the company will leverage its presence in China, India and North Africa;

•  Optimize support functions to become more competitive.

Export share of more than 60 % in 2013, gradually increasing over the

years to come.

•  Sustain operating excellence and financial discipline

•  Create a more valuable portfolio of businesses

•  Drive organic revenue growth at 2 to 3 times gross domestic product

•  Retain an excellent team with a strong culture

•  Manage the company0s risk and reputation

•  Build an excellent investor base •  Lead the board activities

MARKET SHARE 9% 8% 7,8% 7,7%


8

1.1.2.3. SUPPLIERS There are a large amount of possible supply chains for each industry segment. Al though i t was taken the same approach as the one given in the compet i tors study. Only the wind power segment analysis is crucial and the one analyzed.

Wind turbines have more than 8,000 components. Typical ly companies in the business engineer their own design and contract wi th a var iety of suppl iers to manufacture the components.

In th is terms, there are three ways to operate in th is f ie ld and they are represented by the three boxes below.

BUY ALL COMPONENTS PRODUCE THE KEY COMPONENTS AND OUTSOURCE THE REST PRODUCE ALL THE COMPONENTS

The increasing size of business is creat ing complex chal lenges on the supply chain. Decis ions are crucial and companies have to ensure the best ef fect iveness depending on their value proposi t ion.

In one hand companies can prefer to avoid bott lenecks by control l ing al l the components’ product ion but, on the other hand, they can prefer to focus on their core competencies by outsourcing them.

The fol lowing graphic gives the possibi l i ty to have an overview in the standard of these supply chains.

COMPANY

TIER 1 SUPPLIERS Suppliers of large components such as towers, blades,

gearboxes and so on

TIER 2 SUPPLIERS Suppliers of ladders, fiberglass, resin, machined parts,

motors, electrical parts and so on.

In the case of Vestas on ly the t ier 2 suppl iers o f the graphic ( t ier 1 for them) are appl ied to the company’s s t ra tegy.

They keep domest ic the product ion of the key components and avoid bot t lenecks by hav ing a suppl ier management team in terna l ly and a lways two suppl iers for each component . Nowadays they have approx imate ly 1 ,000 suppl iers a l l over the wor ld .

T h e p i c t u r e o n t h e r i g h t s i d e s h o w s t h e i r s t ra teg ic pos i t ion ing. St ra teg ic because Vestas t ry to have a l l o f the i r suppl iers as c lose as poss ib le o f the i r product ion factor ies.

•  F a c t o r i e s

•  S u p p l i e r s


9

1.1.3. INDUSTRY ATTRACTIVENESS The tables below show the at t ract iveness of each segment in the Energy Industry.

I t was made two di f ferent tables depending on the segmentat ion cr i ter ia.

PETROLEUM COAL RENEWABLES

NATURAL GAS NUCLEAR ENERGY HYDROELECTRIC WIND SOLAR BIOMASS

VALUE (BILLION $)

616 991,183 48 003,263 7 511,869 2 768,071 49,767 15 130,144 192 554,353 4 523,493

GROWTH (2011-2035)

0,13% 0,17% -0,02% 2,28% 16,78% 3,48% 0,35% 0,52%

MARGIN

80% 70% 40% 40% 30% 50% 70% 40%

RISK

100% 83% 67% 47% 33% 50% 83% 87%

ATTRACTIVENESS (BILLION $)

508 921,984 42 007,169 4 480,948 4 072,658 1 854,424 34 355,630 175 819,411 2 366,431

SEGMENTATION BY SOURCES OF ENERGY

TRANSPORTATION INDUSTRIAL RESIDENTIAL COMMERCIAL

VALUE (BILLION $) 5 693 100 2 860 704 2 600 640 1 822 480

GROWTH (2011-2035) 0,26% 0,54% 0,15% 0,72%

MARGIN 80% 70% 80% 70%

RISK 77% 50% 67% 75%

ATTRACTIVENESS (BILLION $) 6 319 013,910 4 562 039,841 3 233 714,400 2 020 216,723

SEGMENTATION BY SECTORS

The petroleum energy source is the market segment wi th more at t ract iveness. However i t is a very r isky segment not only because the market is dominated by four big companies but also because the in i t ia l investments are huge. This is also a very control led market but s ince i t is the major source of energy, the players prof i tabi l i ty ’s margins are great.

In the case of Vestas, they are included in the wind power segment s ince they produce and sel l wind turbines. This segment is considered unpenetrated and the forecast growth is promising. However th is k ind of energy have huge f ixed costs and to make i t a compet i t ive source of energy the prof i tabi l i ty ’s margins are lower when compared to other segments. In terms of r isk, in one hand i t is low because of the promising changes in consumer behavior and the increasing pol i t ical in i t iat ives but, on the other hand, i t is h igh because of the high r isk of being subst i tuted by other renewable sources of energy.

Vestas sel ls i ts turbines not to the f inal costumer but to costumers who work as energy suppl iers. This costumer is included in the industr ia l segment of the table. An at t ract ive segment wi th an interest ing forecast growth and a value that can be explored on the future s ince i t has great prof i tabi l i ty margins and a medium r isk. Medium r isk most ly because of the necessary expensive infrastructures to provide ef f ic ient ly the energy.


10

1.1.4. INDUSTRY STRUCTURE

I t does not matter the segmentat ion cr i ter ia, the energy industry is very

concentrated and matured. I t is possible to f ind key players for each

segment and the growth in average is low. Only the solar energy power f rom the sources segmentat ion is posi t ioned

for growth in the future.

The r ight s ide graph provides a picture of how concentrated is the industry in

the wind power segment.

12%

9%

9%

8% 8% 8%

46%

vestas sinovel goldwind gamesa enercon Ge energy others

MARKET SHARE IN 2011 FOR THE WIND SEGMENT

1.2.5. KEY SUCCESS FACTORS

Key Buying factors Competition Factors Key Success

Factors

Win

d P

ower

Seg

men

t

Efficiency Production Costs Efficiency

Coverage Distribution network Production Costs

Credibility Suppliers network Coverage

Price Promotion Distribution network

Key Buying factors

Competition Factors

Key Success Factors

Indu

stria

l Seg

men

t Efficiency Production Costs Efficiency

Coverage Distribution network Production Costs

Credibility Suppliers network Coverage

Price Promotion Distribution network

To analyze the previews tables i t is important to remember that i t was possible to give the same key success factors to both segments because they resul t f rom di f ferent segmentat ion var iables, each one analyzed independent ly.

In other words i t means that to be successful in the wind energy segment or in the energy sale to industr ies the key factors that wi l l leverage the companies are the same.


11

1.2. ORGANIZATIONAL ANALYSIS

1.2.1. RESOURCES Human

22,721 employees over 37 different countries in the end of 2011

By

Reg

ion Americas 3,493

Europe and Africa 14,118

Asia Pacific 5,110

By

task

Production Units 11,000 Sales Units 7,681

R&D 2,037 Others 2,003

HR Policies

Div

ersi

ty

The major goal is to attract and retain skilled and committed employees. Regardless of nationality and gender.

Saf

ety Vestas provide a continuous training under the program

"Safety Walks". The group is very committed to reduce the number of labor accidents.

Rig

hts Vestas as global policies concerning to human rights,

freedom of association and the right to collective bargaining.

FINANCIAL 20

11

Revenues (M€) 5 836 Notes

EBIT (M€) -60 Mostly because of the decrease on revenues

Net Income (M€) -166

Net Working Capital (M€) -71

Equity (M€) 2 576

Total Assest (M€) 7 689

An increase of 9% comparing to 2010

result of the investments in more

infrastructures

2012

Dividends per share (€) 0,00

Share Price (€) 4,16 Oct 26

Market Capitalization (M€) 847 Oct 26

ORGANIZATIONAL Functional business Structure Public held on the NASDAQ OMX Copenhagen Headquarters in Denmark

All

over

the

wor

ld

47 335 Turbines 28 Production factories 38 retail stores and after sale service 9 research centers More than 1,000 suppliers

Three different committees to prepare decisions and recommendations for evaluation and approval by the entire Board of Directors.

The audit Committee

The Nomination & Compensation Committee

The Technology & Manufacturing Committee


12

1.2.2. ACCESS TO SCALE, SCOPE AND EXPERIENCE ECONOMIES

ECONOMIES OF SCALE

Vestas achieve economies of scale by producing more and more powerful wind turbines, in better locations and more efficient.

How?

1st: By giving a great effort in R&D to manufacture more and more powerful turbines and more efficient distribution channels.

2nd: By investing in research to find the locations with the best characteristics for the turbines performance.

Why?

Because if they do this they will have to spend the same amount of capital to build wind turbines but as result they produce more energy since they have better strategic locations, more powerful turbines, and less energy

losses, which will sell for higher prices for sure.

SCOPE ECONOMIES

The good news about the manufacture of wind turbines is that some components and resources can be used through all of the product lines even when updates are done on the technology. For example the tower

infrastructure is always made of the same components and raw materials or the team that build the wind farms are always the same no matter the wind turbine line.

It means Vestas achieve Scope economies by sharing synergies and resources between the different product lines.

EXPERIENCE ECONOMIES

It is easy to perceive that Vestas can easily achieve experience economies. They work always on the same market segment with almost the same products so it is easy to

learn from past situations.

… to improve this matter, Vestas provide three different opportunities for career

development:

However... Professional Vestas always provide the necessary practical skills.

Technical Vestas promote continuous training for the latest technologies, either in workshops, classrooms or on the factory floor.

Leadership Vestas supports their high potential candidate with leadership transition programs


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1.2.3. STRENGTHS AND CORE COMPETENCIES

STRENGTHS REASON

CORE COMPETENCIES

VALUE CREATION FOR THE CLIENTS

DIFFICULTY TO IMITATE BY

COMPETITORS ACCESS TO NEW

MARKETS

STRONG BRAND •  Recognized as the parents of the wind power technology; •  Seen as market drivers. x x x

STRONG MARKET SHARE

•  Market leader in the wind power segment with 12% market share in 2011. - x -

UNIQUE KNOW HOW

•  Vestas has a long experience in the field. •  Joined the market segment in the 70s •  They have learned how to leverage their core

competences and improve their efficiency.

x x x

EFFICIENT LOGISTICS

•  Strategy focus on cost of energy production, reliability, R&D and technology.

•  Huge and complex supply chain with a policy of 2 suppliers for each component.

•  Promotion of the "easy to work with" policy that searches for simplicity on their manufacturing process

•  Implementation of local production for local markets strategy.

x x x

FOCUS ON COSTUMER •  Annual surveys to understand how satisfied are its

costumers. •  Costumers are positioned as the business focus.

x - x

FOCUS ON QUALITY •  Promotion a six sigma approach to measure the quality in the manufacturing process. x - -

TRANSPARENCY APOLOGISTS

•  Promotion of a transparent marketing policy. •  Launches of a range of initiatives that increase

transparency on both consumers’ and companies’ side such as the launch in 2010 of the Global Consumer Wind Study.

x - x

To be considered a Core Competency, the strength must fulfill all the three characteristics above

1.2.4. STRATEGIC FIT VESTAS WIND POWER AND INDUSTRIAL SEGMENTS

Core Competencies Key Success Factors

Efficiency Production Costs Coverage Distribution Network

Strong Brand - - 5 - Unique Know How 5 5 3 4 Efficient Logistics 5 3 4 5

Average (1-5) 5 4 4 4,5

From the previous table i t is percept ib le that Vestas f i ts the market perfect ly in terms of ef f ic iency. I t was only possible because of the large and unique know how that the company af fords and al l the complex and ef f ic ient logist ics’ strategy.

Overal l the numbers are c lose to the maximum but there st i l l some potent ia l to opt imize the product ion costs, the company’s wor ldwide coverage and the distr ibut ion network. For th is the company has three opt ions: invest, create and develop new core competencies (a complex and di f f icul t process); invest in the present ones or come up with a partnership where they could share them.


14

1.2.5. NEW SWOT ANALYZES

IMPROVED MACROECONOMIC

POLICIES.

•  Growth in the wind sector is the first and foremost driven by political initiatives (climate laws as well as international agreements to meet certain green energy);

•  Vestas shall take this opportunity to leverage its strengths and develop its core business.

INCREASING OIL AND NATURAL GAS

DEMAND

•  This issue allows Vestas to promote its source of energy. The increasing demand is related with the increasing living standards. People does not consume oil and natural gas because they like it but because they need. Promoting Vestas strengths is a great opportunity to growth.

BRIC’S RISE •  Vestas as the opportunity to growth in new or markets where it is not so visible. •  The company is allowed to decrease the impact or actually delete some of its weaknesses. Such as

small market share in high growth markets.

INCREASED HEALTHCARE, SECURITY AND

TIME MANAGEMENT.

•  Growing concerns about climate change and energy supply; •  Strong levels of public acceptance for renewable sources of energy; •  Once again Vestas has here the opportunity to decrease its weaknesses such as the negative

results and the dependence on subsidy schemes.

HALF OF THE POPULATION WILL

BE URBAN

•  Vestas has the opportunity to optimize its logistics performance and effectiveness. •  Less channels will be necessary to provide energy for the same amount of costumers.

PROGRESS ON SEVERAL MATTERS WITHIN LOGISTICS

•  It will be necessary less investments in R&D •  Dependence on suppliers will also decrease because this opportunity allows the company to

improve its logistics strength , capacity and the focus on quality.


15

2. STRATEGY FORMULATION

16

2.1. VISION, MISSION AND VALUES

COMMENT

VISION Wind, oil and gas

Renewable energy sources are becoming more important. Millions of people recognize it as the key solution for a sustainable economic growth in the future. Vestas has this vision, the vision that wind will be as important as fossil sources

of energy, in particular, oil and gas.

MISSION "Failure is not an option"

The mission gives a plain idea of the commitment in the business. Although it does not give any information about the business, the costumers, and the value

proposition. One outsider could not make a decision or perceive the goal of Vestas without special information.

VALUES Reliability

Common Sense Trustworthiness

This three values are the cornerstone of all Vestas’ activities. Vestas believe in a culture where initiatives, collaboration and responsibility are the keys for the

business success.

2.2. OBJECTIVES

Fina

ncia

l Obj

ectiv

es

Sho

rt Te

rm (2

012)

•  Achieve an EBIT margin between 0 and 4%; •  Revenue between EUR 6,500-8,000 millions; •  Achieve warranty provisions about 3% of the

expected full-year revenue; •  Achieve shipments of 6.3GW; •  Drive EUR450 millions in new investments; •  Reduce fixed costs by more than EUR 250

millions.

Long

Ter

m

•  Get benefit from their scale and develop a more competitive cost structure; Achieve a high single-digit EBIT margin in the medium term, subject to a normalized US market;

•  Finance its own growth; •  Increase its market share; •  Increase the service business, which is more

profitable than the sale of turbines.

Non

-Fin

anci

al O

bjec

tives

S

hort

Term

•  Launch of new platforms such as the V164-7.0 MW turbine;

•  Remain self-sufficient in blades production; •  Reduce industrial to no more than 3 per 1

million working hours in 2012; •  Securing outstanding performance levels

for all wind turbines through six sigma philosophy

Long

Ter

m

•  World class within safety, quality and delivery precision;

•  Secure World Class procurement; •  Expand global capacity on critical

components; •  Establish a global supply base; •  Reduce industrial to no more than 0.5 per 1

million working hours until 2015; •  Achieve a carbon footprint of 6 grams of

CO2 per kWh until 2015;

Vestas has i ts object ives very wel l scheduled. However i t is impossible to have speci f ic informat ion for how are they going to do i t . Perhaps by developing i ts core competencies and dr iv ing investments on new technology ( I t is possible to better understand how they are going to achieve this object ives wi th the next subject , Strategy and Strategic Dimensions).

I t is a lso important to inform that they restructured the organizat ion and kept on invest ing in R&D even with the negat ive resul ts f rom the last year. This means the company is very commit ted to develop i tsel f to the maximum before th inking about going in other ways l ike a future partnership wi th other components or energy suppl ier . I t is a real i ty most ly because despi te the bad resul ts they st i l l the market leaders.


17

2.3. STRATEGY AND STRATEGIC DIMENSIONS Vestas’ strategy can be summarized in three programs: “The wi l lpower”, “No. 1 in modern energy” and more recent ly “Wind i t means the wor ld to us”. Despi te the top two are not anymore the main focus of the company i t st i l ls possible to perceive some strategies that are based on i ts values.

The table below shows which are th is business and corporate strategies and how they f i t on the company’s dimension.

STRATEGY STRATEGIC DIMENSION DEVELOPMENT

1. Develop its aftermarket services in terms of company’s share, response and quality. Product-markets Internal Development

2. Increase economies of scale Vertical Integration Internal Development

3. Take advantage of the industry supply chain Vertical Integration External Development

Strategic Alliances

4. Deliver solutions and product upgrades faster and with lower risk. Product-markets Internal Development

5. Drive the market with core technologies Product-markets Internal Development

6. Develop a leading offshore platform, V164 Product-markets Internal Development

7. Focus its business on wind advantages: financially competitive, predictable, independent, clean and fast. Product-markets Internal Development

Keep up with th is strategies together wi th the last organizat ional restructure al lows the Vestas’ path to be a big sustainable prof i tabi l i ty promise. Vestas wants to reborn f rom the last year resul ts as fast as possible. They have huge responsibi l i t ies to i ts employees but also to the market. They just can not af ford one more year as 2011.

The Vestas strategy works most ly in two dimensions: the product-markets and the vert ical integrat ion. This means the company knows or bel ieves that by improving th is two dimensions i t wi l l be possible to control the market and consol idate i ts posi t ion as the wor ld ’s leading manufacturer of wind power solut ions.

PRODUCTS-MARKETS VERTICAL INTEGRATION INTERNATIONALIZATION

INTE

RN

AL

DEV

ELO

PMEN

T

Vestas offers a range of products that reach out to each

customer needs. Its portfolio follow three different features:

capacity, conditions and requirements they are supposed

to work in. Vestas also offers a range of

services connected to planning, transport, construction,

operation and service to power optimization.

Vestas has a range number of suppliers. Nowadays it accounts for more than 1,000 thousand.

Mostly because of the two suppliers for each component policy. However the company

keeps internally the production of key components such as

blades and generators.

Vestas is present in more than 70 countries with its technology. They also have factories, sale

stores, and research centers all over the world. However most of

them are in the European market.


18

PRODUCTS-MARKETS VERTICAL INTEGRATION INTERNATIONALIZATION

EXTE

RN

AL

DEV

ELO

PMEN

T

Stra

tegi

c al

lianc

es Vestas has some partnerships

mostly for research and transportation. Such as Boeing, MIT,

Bristol, Aalborg, Tsinghua, IIT Chennai and NTU

Vestas has some and want to develop long term contracts with

suppliers for components such as ladders, motors, electrical parts and

so on.

It does not fit with the company’s strategy.

Mer

gers

& A

cqui

sitio

ns In 2004 Vestas merged with NEG

Micon A/S , another Danish wind turbine manufacture. It was an important step for the portfolio

development.

The merge with NEG Micon A/S allowed Vestas to share resources and synergies between companies. This move was important become a more efficient company in terms of

logistics.

NEG Micon A/S was represented all over the world with its turbines. This means

that acquisition by Vestas allowed the company to

penetrate in foreign markets.

No more merges/acquisitions are programmed by Vestas however Sinovel and Goodwill are planning to make a bet to the company. This acquisition would have impact in the three dimensions such as NEG Micon A/S had

in 2004.

Mar

ket

Tran

sact

ions

Not suitable with the company’s strategy. Moreover the company plans to decrease its dependence on suppliers by increasing the internal production.

2.4. CORPORATE GOVERNANCE Vestas is a l imi ted l iabi l i ty company with two-t ier management systems: the board of d i rectors and the management team.

The management team is responsible for present ing proposals for the overal l company’s object ive, strategies and act ion plans as wel l as proposals for the overal l operat ing, investment, f inancing and l iquidi ty budgets to the board of d i rectors.

The management team also has the support of three board commit tees at Vestas:

THE AUDIT COMMITTEE THE NOMINATION & COMPENSATION COMMITTEE

THE TECHNOLOGY & MANUFACTURING COMMITTEE

The main goal of th is commit tee is to assist

the board of d i rectors in relat ion to internal and

external control of f inancing, f inancial

goals and group’s r isks.

This commit tee is responsible to assist the

board in matters and decis ions concerning

earnings and remunerat ion.

I t assists the board in assessing technological

issues, IPR strategy, product development

plans, and product ion.


19

2.5. PRODUCT-MARKETS

MARKET SEGMENTS

Wind power Industrial sale

PR

OD

UC

T LI

NE

S

Oil Barrels Coal Bags Solar Panels Wind Turbines Dams Biofuel Wood Waste Tanks of Gas Nuclear reactors

The aside table represent al l the energy industry product l ines. As we can see Vestas covers only one product l ine in each of i ts segment. The sale of Wind turbines. Al l the other segments have no potent ia l for the company because at the moment i t is not the focus of the business and also because they do not meet the r e s o u r c e s a n d c o r e c o m p e t e n c i e s necessary to jo in the l ines. Inside the wind turbines’ product l ine i t is a lso possible to m e e t a r a n g e o n p r o d u c t s t h a t a r e di f ferent iated by the capaci ty, as shown in the table below.

MARKET SEGMENTS

Wind power Industrial sale

PR

OD

UC

T LI

NE

S

850 KW 1.5 MW 1.8 MW 2 MW

2.3 MW

2.5 MW

2.6 MW

3 MW

4.5 MW

6 MW

3 MW offshore

5 MW offshore

8MW offshore

Vestas of fers the large range of turbines in the market.

Despi te the t rend is to develop more powerful turbines with large capaci ty, Vestas st i l l wi th some potent ia l in the current product l ine. This is the case of the 850KW capaci ty turbines that can be very useful in special locat ion cond i t ions and the 6MW turb ine since i t is the current most powerful turbine in the market wi thout count ing wi th of fshore turbines.

However Vestas covers wi th i ts product l ine a l l t h e s e g m e n t s i n t e r m s o f n a t u r a l condi t ions. I t is possible to see this fact on the table below.

TURBINE WIND CLASS

High Wind Medium Wind Low Wind

1.8 MW X X

2MW X

2.6 MW X X

3.0 MW X X X

3.0 MW offshore X X

8 MW offshore X X

To reach these di f ferent wind classes, the company a lso has d i f fe ren t mode ls in terms of potency (V80, V90, V100, V112, V126 and V164).


20

Vestas focus its business on the energy industry as already have been said. They have a complementary product line in terms of potency, capacity and natural conditions through an unbunding strategy (since it is necessary to pay for each turbine).

PRODUCT

Present New

MA

RK

ET

Pre

sen

t

Market Penetration

Product Extension

New

Through the Ansoff model in the right side it is perceptible that Vestas uses a market penetration and extension in terms of evolution of the product-markets matrix.

By developing its product lines Vestas desire is to consolidate/gain market share and increase the wind energy usage but also to increase its portfolio that is already the larger in the market and drive the trends by creating new products.

In the next graphs it is possible to understand how strong is its competitive advantage in the wind energy market.

PRODUCTION COSTS

Low High

EF

FIC

IEN

CY

H igh

Low

DISTRIBUTION NETWORK

Low High

CO

VE

RA

GE

H igh

Low

SOURCE OF ENERGY SEGMENTATION: WIND POWER

END OF USE SEGMENTATION: INDUSTRIAL

PRODUCTION COSTS

Low High

EF

FIC

IEN

CY

H igh

Low

PRODUCTION COSTS

Low High

EF

FIC

IEN

CY

H igh

Low

Once again it is necessary to remember the energy industry is very concentrated even in the wind energy segment. Consequently it has a great impact for the companies positioning because it is easy to have information about all of them and their strategies. This makes the company to have in several situations problems has the prisoner dilemma from the games theory because the companies sometimes can not make moves because other companies can get more profitable from that or if they do so they will be followed by the rest of the competition. This is the main reason for the perceptual maps do not be so differentiated. Although Vestas has a dominant competitive advantage in both segments. They are market leaders, they have the large product line, the largest coverage, the better efficiency policy, they drive the market with technology and know how, but they also have huge production costs as it is usual in this segment. However it is a more a threat for the company when watching the full picture of competitors because we can not forget energy companies from other sources of energy since at the end they all produce the same final product/service.


21

In terms of differentiation, Vestas products are associated to a symbolic and technical differentiation. In one hand they are aware its costumers associate the company has the market leader and because of this positioning its products will be always an option. They are also associated to be market drivers with its technology and new turbines, once again this is a reason that confirms the symbolic differentiation of the company. On the other hand, they know its costumers give a huge importance to quality and efficiency and that is why they have to assume a technical differentiation to become competitive in the market.

LEVEL OF CONFIDENCE

Low High

RIS

K P

ER

CE

PTI

ON

Hig

h

Symbolic Differentiation

Technical Differentiation

Lo

w

On the tables below, to sum up all this information it is possible to understand what is the future of Vestas strategy.

PRODUCT LIFE-CYCLE COMPETITIVE ADVANTAGE Introduction Growth Maturity Decline

Dominant

Strong

Favorable

Sustainable

Weak

PRODUCT LIFE-CYCLE COMPETITIVE ADVANTAGE Introduction Growth Maturity Decline

Dominant

Strong

Favorable

Sustainable

Weak

SO U R C E O F EN E R G Y SE G M E N T A T I O N : WI N D PO W E R EN D O F U S E SE G M E N T A T I O N : IN D U S T R I A L

Grow with the industry Grow with the industry

The graph on the right side illustrates all this activities and it also add the information about how much vertical is each Vestas activity. The blue color means the internal part and the white the percentage of outsourcing. As we can see Vestas has something to work in all the operational activities and it means that the company does not have any quasi-vertical integration.

In the next table it is possible to have more detailed information about each activity.

Forw

ard

Inte

grat

ion

Bac

kwar

d In

tegr

atio

n

Production

Design

Human Resources

management

Financing

Product Transportation

Retail Stores

After sales service

Storage

Promotion

IT services

Raw Materials

production

2.6. VERTICAL INTEGRATION R&D


22

INTERNALLY MANAGED

PARTIAL VERTICAL

INTEGRATION

QUASI VERTICAL

INTEGRATION COMMENTS

BA

CK

WA

RD

Act

iviti

es Design X All the design is done by Vestas design department

Financing X Vestas receives some political incentives but they also finance themselves near bank when it is necessary.

Raw Materials production X In this case components supply. Vestas has more than 1,000 suppliers. Although

they also produce the key components for the turbines.

Human Resources

Management X

Vestas has their own human resources department to manage all the employees and also make all the recruitment processes. The company also has an internal academy to provide future employees with all the necessary knowledge of the sector.

R&D X Vestas has its own research centers however they keep some partnership with outside organizations such as MIT.

IT services X Vestas has its own IT services and they are developed in their research centers worldwide.

PRODUCTION X Vestas keeps internal the turbines assembling

FOR

WA

RD

AC

TIVI

TIES

Retail Stores X Vestas has its own sale stores all over the world. It is the only way to buy its products.

Product Transportation X They choose the channels but they have to make long term contracts with outside

companies to make the transportation.

After Sales service X After sales service is provided by the company

Storage X The storage is also made in Vestas infrastructures.

Promotion X All the promotion is done by internal employees which define and do all the promotion processes.

2.7. INTERNATIONALIZATION Nowadays Vestas is represented worldwide through its wind farms, production facilities, sale services and research centers. Represented in more than 70 countries, Vestas aims to go further.

At this point it is important to understand why, how and where they apply this strategy.

INTERNATIONALIZATION GOALS

Decrease Risk

Vestas seeks to decrease its market risk by exploring and joining new markets where natural conditions are favorable and unserved by the business

Increase Sales Through Internationalization Vestas expects to growth and increase its value by attracting new costumers.

Decrease Costs

Internationalization also means increase economies of scale for Vestas and that is why they have production factories all over the world. They look for special locations where it is possible to reduce the production fixed costs. For example the production factory in China where for sure the company as less costs with the human resources than one of the factories in denmark.

Increase Synergies

By going in new places Vestas also look to attract some special resources such as know how. For example the research center in Boston that is combined with the MIT partnership


23

INTERNATIONALIZATION CRITERIA REASON

Atra

ctiv

enes

s

Value The Company is motivated to internationalize mostly to reach more costumers and obtain more growth. Growth

Margin It is important to the company internationalize for countries where they can have less production costs. However it is not a determinant factor. Because the main goal is to sale more and reach new costumers.

Risk When internationalizing Vestas looks to decrease its risk. They strategically choose locations also with the best natural conditions and by having a worldwide coverage they can manage its production because natural condtions are not the same everywhere.

Stra

tegi

c Fi

t

Efficiency By internationalizing Vestas as it was said looks for special synergies and this happens because they seek to improve its products and service efficiency

Coverage Also internationalize will fit better the key success factors of the industry. So if they want to be successfull they have to internationalize

Production Costs Despite Vestas take advantage of the production costs in each country where it is represented, it is not the main goal to go further. The same happens with the distribution network. Distribution

Network

INTERNATIONALIZATION OPTIONS

Dire

ct

Inve

stm

ent

•  Direct investments are the main strategy in use by Vestas. They strategically find the place that fulfills their criteria and they reach there with their own money.

•  They invest in communication channels, they export some of their resources and start contracts with suppliers to build infrastructures and supply future needs such as components.

Tran

sact

ions

•  Entrance in foreign countries through license agreements with third parties to produce. Such as political agreements and initiatives.

CONDITIONS

Natural favorable Places where the wind conditions are favorable for the technology's development

Underserved demand Places where the demand stills underserved

High GDP Places with a large industrial sectors and consumption ratios

This three conditions are not always suitable and that is why they have a range of products that cover all the wind classes and fields.

In the appendix 2 it is possible to take a view in a table with the places where they already are, fruit of this three factors combination.


24

ADAPTATION AND STANDARDIZATION FACTORS

CULTURE/HABITS DESIGN/TASTE LANGUAGE SIZE/PACKAGE TECHNICAL

SYSTEM CLIENT/

APPLICATION

Concept

Marketing

Technology

Product

As we can see through the Green boxes, Vestas has to adapt some issues of its business to join new countries.

This adaptation are mostly in marketing issue because each country has its own culture and behavior. It is important to suit the marketing strategy with this reality because it is the major way to attract potential costumers.

It is also necessary to adapt the size/package of the product because each country has its own resources and needs. This issue is well covered by Vestas because they have a large range of product lines.

LOCAL ADAPTATION

Low High

GLOBAL INTEGRATION

High Global Company

Low

Vestas is considered a Global Company. They have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. There is low adaptation as it was already said before and decisions come always from the headoffice in Denmark.

INTERNATIONAL INTEGRATION


25

Date post:	14-Dec-2014
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