Developing solar energy businesses may help energy producers and users to reduce carbon dioxide emissions, clean the air, improve energy security, and enhance the world economic development. Solar energy is the worlds most abundant energy resource and is a significant contributor to future usage of energy resources. However, in 2007, global solar energy consumption accounted for only about 1 of total energy consumption. As solar energy development has a long history, the main reason for the slow pace of solar energy business growth is that it lacks appropriate business strategies. Thus, the research problem shall delve on how Chinese solar energy firms can expand with the use of appropriate strategies to improve solar business efficiency and cost-effectiveness, enhance solar business capabilities, and ultimately gain sustainable competitive advantages in the energy industry. By answering the research question, solar energy firms will be able to follow a backbone from which it can expand and be more competitive. Since in-depth information is required in order to address the research problem, the study will be employing a qualitative research methodology with a case study design. The qualitative case study will be following a pattern-matching procedure, a means of relating the data to the propositions of the study with several pieces of information from similar situations. Four Chinese solar energy business firms will be chosen as the studys subjects L Solar, S Power, T Solar, and Y Energy. The purpose of this study will be to explore and analyze the strategies used by the four firms using data from 435 Securities and Exchange Commission (SEC) filing documents of the four firms and relevant journal articles. The SEC filing documents include initial public offering documents, announcements of strategic implementation and performance, and quarterly and annual financial reports. Using the qualitative case study design will be meaningful for understanding what the firms have achieved and for developing a theory about their generic and grand strategies implemented in expanding solar energy businesses.
Chapter 1 Introduction
Developing renewable energy can help energy producers and users reduce carbon dioxide (CO2) emissions, clean the air, improve their energy security, and enhance the world economic development using natural energy resources. These natural energy resources are sunlight, wind, water, tides, biomass, and geothermal heat that are unlimited, rapidly replenished, and naturally renewable (Scheer, 2005). Although solar energy is not the only natural resource available for developing renewable energies, solar energy can be a significant contributor to future usage of energy resources (Fraas, 2005). One possibility being explored is to improve cost-effectiveness for the development of solar energy through formulating effective strategies to enhance business capacities (Gordon Research Conferences, 2008). Thus, for the proposed study, the strategies implemented by four selected Chinese solar energy firms to expand solar energy businesses will be explored.
Solar energy development has a long history, from ancient Greek homes built to face the warm winter sun to advanced thin-film Photovoltaics (PVs). However, the market share of solar energy has increased at a slow pace (Southface, 2008). Solar energy is the worlds most abundant energy resource, and developing solar energy businesses will be important for the worlds economic development (U.S. Department of Energy, 2009).
Chapter 1 presents a background of the effect of increasing consumption of conventional energy on causing energy crises, global warming, and other ecological problems and the importance of developing solar energy businesses. This chapter also features the applied framework of the study. It also identifies the research problem, study purpose, and research questions, and it describes the nature and significance of the study. Finally, this chapter also defines the important terms used in this study.
Background
After the energy crises of 1973 to1974 and 1979 to1980, the costs of gasoline, diesel, home heating oil, and electricity rose to record levels. The same phenomenon reoccurred in 2008 (Amold, 2008). In the New York Mercantile Exchange (NYMEX), crude oil futures more than doubled their levels from 2007 to 2008, exceeding 140 per barrel in July 2008 (International Energy Agency IEA, 2008a). Since then, prices of the crude oil futures have fallen below 40 per barrel in December, 2008 (IEA, 2008b). The energy crisis in 2008 with an unprecedented volatility in global crude oil has negatively affected most national economies and is threatening the world economic development and the quality of human life (Amold, 2008).
Due to the financial crisis that began in July 2007 with a loss of confidence by investors in the value of securitized mortgages in the United States, the global economic crisis emerged in 2008 (Elliott, 2008). As the worlds main government leaders make efforts to encourage economic development through expansionary fiscal and monetary policies, the global economy is projected to experience a gradual recovery in 2010 (International Monetary Fund, 2009). Inasmuch as the worlds economy is gradually recovering from the economic crisis of 2008, prices of the crude oil futures have risen above 72 per barrel in August 2009 (IEA, 2009). World oil production will peak before 2020 although fossil fuels may never be depleted completely they will become increasingly difficult and expensive to extract (Foster, 2008 Sawin, 2004). Energy also becomes crucial to the economic development in developing countries where over 1.6 billion people have no access to electricity (Pernick Wilder, 2007).
The worldwide issue of global warming is growing because of 16 million tons of CO2 emitted into the atmosphere every 24 hours, largely as a result of the consumption of fossil fuels (Energy Information Administration EIA, 2008a). Human activities, mainly fossil fuels and land development, have been responsible for the global warming that has taken place since the industrial revolution (Li, 2008 Pachauri Reisinger, 2008). The earths temperature fluctuates with periods of warmth alternating with cooling and ice ages. Cycles of global warming and cooling are a natural part of the earths history (Sadler Klosterman, 2009). However, most scientists believe that current climate changes are not likely a part of these broader natural cycles and provide strong evidence about the human activities related to the release of greenhouse gases to contribute to the warming climate (Flowers, Marshall, Bjornsson, Clarke, 2005 Hare, 2009 Pernick Wilder, 2007 Sadler Klosterman).
Due to the human activities, the evidence of global warming rapidly mounts, such as melting ice caps, rising temperatures, and increasingly frequent natural disasters (Flowers et al., 2005 Hare, 2009). In recent international meetings from 2004 to 2009, the scientific community has concluded the following
(a) Greenhouse gases such as CO2 trap heat in the Earths atmosphere.
(b) Global temperatures are rising.
(c) Human activities that involve the burning of fossil fuels release large quantities of CO2 into the atmosphere.
(d) Increasing levels of greenhouse gases such as CO2 are directly associated with global temperature rises (Flowers et al. Hare Pernick Wilder, 2007 Sadler Klosterman, 2009).
In addition to causing global warming, the increasing consumption of fossil fuels also generates other ecological problems. These ecological problems are air pollution, destruction of the ozone layer, and increased toxicity of the environment (Flowers et al., 2005 Foster, 2001 Gliksman, 2007). According to Root and associates (2003), global warming and other ecological problems are negatively impacting human life as well as hundreds of plant and animal species around the world. According to Global Humanitarian Research (2009), more than 300 million people are seriously affected by climate change at a total economic cost of 125 billion per year.
Thus, the worldwide energy crisis, global warming, and other ecological problems have become key concerns for most countries. Developing the global economy and maintaining and improving the quality of human life require the development of alternative energies such as renewable energies. The development of renewable energies can help reduce the energy crises and the impacts of pollution and greenhouse gases that are detrimental to human health and the environment (Amold, 2008). Therefore, most government leaders have signed and ratified the Kyoto Protocol to limit CO2 emissions and are interested in developing renewable energies (Woods Hole Research Center, 2008). Improvements in energy efficiency could dramatically reduce emissions of greenhouse gases, save money, and provide resources needed to improve and develop new energy sources (Pernick Wilder, 2007). One possibility is improving cost effectiveness for the development of solar energy.
China has become a world leader in PV cell production and in solar thermal production and use (Li, 2005). In 2008, 2 GW of solar cells were manufactured in China, accounting for 30 of the global total production, to secure a leading position (PV Group, 2009). since March 2009, the leaders of Chinese governments at the national, provincial, and even the local level have offered solar companies generous subsidies to help reduce the cost of solar energy, including free land and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States (Bradsher, 2009).
Developing solar energy technologies and businesses creates new jobs (Hamer, 2006 Weiss, 2009). According to Weiss (2009), producing per megawatt (MWp) solar PV system is estimated to create 10 jobs. The process of installation of MWp is expected to create about 33 jobs. Wholesaling of the systems and indirect supply of MWp can create about 10 jobs. As China is a huge yet-to-be-opened domestic market for using solar energy, developing solar energy businesses has the potential to generate more jobs. In addition to creating new jobs and reducing costs, developing solar energy businesses also promotes technologies to introduce new products and reduce costs (PV Group, 2009).
UK Photovoltaic Manufacturers Associations (UKPV) study presented that solar energy would fall in price to match the cost of conventional fossil fuel electricity far sooner than previously expected. Homeowners will see that solar energy becomes cheaper than conventional nonrenewable electricity by 2013 inasmuch as falling production costs for solar PV system and increasing conventional electricity costs have brought parity closer. As a key material for solar energy products, solar wafers (otherwise known as a solar cell) cost would fall by 31.5 in 2009 based on the price level of 2008 (UKPV, 2009). Heckeroth (2008) stated that simply incorporating passive solar design strategies, energy efficiency, conservation, and other active solar heating strategies in the construction of buildings can save up to 95 of energy used in conventional buildings. With the addition of building-integrated PV systems, building can be turned into net energy producers. Energy from the sun can be used to power all kinds of vehicles as well. Researchers at UKPV believed that technological innovation would be able to take the price down sharply in 2020.
Based on governmental and bank supports, Chinese solar energy business leaders are able to accomplish this possibility of exploring and creating effective business strategies and establishing critical success factors (CSFs) to enhance the business capacities and expand solar energy businesses worldwide. Pearce and Robinson (2009) suggested that identifying CSFs allows solar energy firms to focus on important aspects that will help them meet their mission and objectives. This also allows them to create effective grand strategies to improve cost-effectiveness of solar energy.
Problem Statement
The IEA (International Energy Agency) (1999) noted that the world is in the early stages of an inevitable transition to a sustainable energy system that will be largely dependent on renewable resources (p. 53). In 2007, global solar energy consumption accounted for only about 1 of total energy consumption, and total renewable energy consumption was only 7.7 of the total consumption (EIA, 2008b).
Developing renewable energy sources such as solar energy can greatly help in reducing CO2 emissions, clean the air, improve energy security and enhance economic development. Resorting to renewable energy sources can also prevent another energy crisis from happening. Such energy crises shocked the world from 1973 to 1974 and 1979 to 1980. The crisis repeated itself in 2008 (Amold, 2008).
As developing solar energy businesses can help reduce global warming and other ecological problems while satisfying customer demand and the firms desire for gaining market share in the energy production industry, a meticulous, in-depth market analysis should be done by formulating business strategies and establishing CSFs to increase market share (Kerin, Hartly, Berkowitz, Rudelius, 2006). Strong market analysis may enable entrepreneurs to see indications of the growth potential of developing solar energy businesses. To conduct the market analysis, solar business operators can forecast business trends, formulate new strategies, manage customer relationships, and establish pricing, distribution, and promotional strategies so the solar energy businesses become profitable within a competitive environment (Green Keegan, 2005). Thus, the development of solar energy businesses requires appropriate strategies merged with existing energy strategies based on the market analysis.
The history of solar energy development suggested that solar energy could not rapidly replace current energy sources as the sole energy source. However, to enhance business growth in a competitive environment, firms that develop solar energy businesses need to implement appropriate strategies. For the proposed study, the research problem will delve on how Chinese solar energy firms can expand with the use of appropriate strategies to improve solar business efficiency and cost-effectiveness, enhance solar business capabilities, and ultimately gain sustainable competitive advantages in the energy industry (Pearce Robinson, 2009 Pernick Wilder, 2007).
Purpose
The purpose of the proposed qualitative case study is to explore, analyze, and evaluate strategies used in expanding solar energy businesses based on the investigation of four Chinese solar energy firms traded on the New York Stock Exchange (NYSE). The selected firms for this still will be investigated by reviewing published data from U.S. Securities and Exchange Commission (SEC) filing documents of the four firms and relevant published journal articles pertaining to solar energy and business. According to Pearce and Robinson (2009), business strategies are important in establishing Critical Success Factors (CSF) of a firm. However, identifying CSFs is vital for the successful implementation of business strategies (Caralli, 2004). Identifying CSFs will be beneficial to allocating corporate resources of a solar energy firm for formulating new business strategies and building the firms value chain and capabilities to gain sustainable competitive advantages (Hunger Wheelen, 2007). By exploring and analyzing documental data from SEC filing of the four firms and relevant published journal articles, the study will seek to identify success factors critical to gaining sustainable competitive advantages in the development of solar energy businesses. The results of this study may be beneficial to firms in the solar energy industry that are addressing strategic development at corporate levels and firms that have an interest in entering the solar energy business.
Theoretical Framework
By employing a qualitative case study method, the postmodern framework is appropriate for building an applied framework for the proposed study. Adopting postmodern framework allows the development of critical thinking skills (Blanton, 2008). In the postmodern awareness, the key to interpretation is the art of description that involves choice. Thus, interpretation always involves taking some form of choice in qualitative research (Shank, 2006). Reality only comes into being through interpretations of what the world means to people individually (Public Broadcasting Service PBS, 2008). A critical engagement with the postmodern awareness requires the ability to recognize where the awareness equips researchers with effective ways of thinking about people and the world (Blanton, 2008). Grenz (2005) indicated that postmodern awareness was beneficial because the awareness was post-rationalistic, post-individualistic, and post-dualistic.
By rejecting the rationalism of modern thinkers and introducing the use of other methods for obtaining knowledge, postmodernists recognize the limitations inherent in relying solely on reason. The postmodernist also questions researchs dependence on rationality. The mind is insufficient for gaining an adequate understanding of the world in which people live, and thinking alone cannot put people in touch with reality (Grenz, 2005). Blanton (2008) indicated that postmodernism went beyond modernism but not far enough, and he believes that postmodern awareness, in spite of its reaction against modernism, adopted the modern definition of reality, a term that refers only to physical reality. Through exploring effective strategies to expand solar energy businesses and identifying CSFs to enhance solar energy business capabilities, the postmodern framework can best fit with the proposed qualitative case study design.
A major postmodern trend that affects social research and practice is constructivism, a psychological theory of learning. As humans obtain knowledge from their experiences (Shank, 2006), the constructivists viewpoint is that learners are active builders of knowledge (Merseth, 1991). Case studies refer to relying on analytical generalization (Yin, 2008). Through careful investigation, evaluation, and analysis of contemporary phenomena, researchers can identify actual problems, recognize key players and their agendas, and become aware of those aspects of the situation that contribute to the problems (Merseth). To employ the qualitative case study design with the postmodern framework in the analytical generalization, the proposed study will display the analysis of research problem under consideration to identify and address research questions for developing solutions and for building the knowledge of the study to the research problem.
Research Questions
Research questions are the studys directions and guides designed to meet the purpose of the proposed qualitative case study for the research problem solving. To focus on the concepts of generic and grand strategies, CSFs, and perspectives on developing solar energy businesses, the research questions are open-ended, evolving, non-directional, and are beginning with what or how to restate the study purpose in more specific terms (Creswell, 2008). Yin (2008) indicated that research questions could be exploratory, and questions beginning with how or why are likely to favor the use of case studies. A researcher should ask one or two central questions followed by no more than five sub-questions, and these sub-questions can narrow and clarify the focus of the qualitative case study (Creswell). There is one central research question followed by three sub-questions in the qualitative case study. The central question is How do Chinese firms expand solar energy businesses Based on the central research question in consideration with the given principles, the following three sub-questions will be addressed in the qualitative case study.
Q1 What are generic strategies used by Chinese firms to develop solar energy businesses and how are they being employed
Q2 What are various grand strategies implemented to expand solar energy businesses and how are they being employed
Q3 What internalexternal factors are essential for Chinese firms to develop solar energy businesses
Nature of the Study
The proposed study will employ a qualitative research method with a case study design. The applied framework will be the postmodern framework with constructivism and interpretation. Based on the applied framework, the qualitative case study will present the analysis of research problem, purpose, and questions arising from the challenges in the development of the solar energy business so as to acquire the knowledge that will aid in providing solutions to problems encountered in developing a solar energy business. The supporting information of the study will be obtained from governmental and institutional publications and reports, SEC filing documents of four Chinese solar energy firms, and relevant published journal articles. The four Chinese solar energy firms will be chosen as the studys subjects. The four firms have been operational for 5 years or longer with the assumption of continuity, and their stocks are traded on NYSE. By exploring the effective strategies used and CSFs established by the four firms to expand solar energy businesses, the data collection of the qualitative case study will be from 435 SEC filing documents of the four firms and relevant articles. These SEC filing documents include initial public offering (IPO) documents, announcements of strategic implementation and performance, and quarterly and annual financial reports. The resultant data from the SEC filing documents and relevant articles will be used to address the three specific research questions for the research problem-solving.
The purpose of a case study will be to focus on a contemporary phenomenon, as a researcher has very little control over events (Yin, 2008). Due to the current global warming, energy crisis, customer demand, and world economic development, the need to develop renewable energies has become a contemporary phenomenon. According to Creswell (2008), by adopting a qualitative case study, a researcher can explore a project or a program in depth. Existing documents are exact and unobtrusive, and data from the existing documents can be analyzed through use of content analysis method in the form of thematic analysis of texts (Trochim Donnelly, 2007). The qualitative case study design will be feasible for the study through analyzing and evaluating the SEC filing documental data of the four firms and relevant articles. Hence, the proposed case study will involve a process to focus on the analysis and evaluation of the SEC filing documents of the four firms and relevant articles. The qualitative case study will be assumed to be meaningful based on the means of collecting data from 435 SEC filing documents of the four firms and relevant articles.
Significance of the Study
Solar energy is the conversion of sunlight into electricity via photovoltaics, concentrating on solar thermal devices and various experimental technologies (Fraas, 2005). Solar energy does not generate CO2 emissions and is a clean, efficient, and sustainable form of renewable energy (Bradford, 2006). Although developing solar energy is essential, marketing, institutional, and policy impediments may retard the acceptance of renewable energy technologies (Margolis Zuboy, 2006). The overall significance of the proposed research is that it may provide additional awareness and education concerning the business strategies in developing solar energy businesses to compete within the energy production industry. The results of the study could be of interest to entrepreneurs, investors, bankers, and environmental protection agents involved in businesses related to developing solar energy and enhancing environmental protection.
Through analyzing and evaluating SEC filing documents of the four Chinese solar energy firms and relevant articles, the study consists of identifying the research problem, evaluating the business conditions and operations of the four firms, and addressing the three research questions. In the process, the study will present strategies used and CSFs established by the four firms to develop solar energy businesses these strategies may present alternative business development paths to firms in the solar energy industry. Moreover, the study may present information that will entice firms with interest in developing solar energy businesses to enter the solar energy industry. The study may also show environmental protection agents information with which to establish effective environmental protection policies and may display meaningful information to encourage investors and creditors to invest in the solar energy industry.
Definitions
For the proposed study, this section will be used to define three main concepts, including business concepts, environmental issue concepts, and renewable energy concepts that are the following
American Depositary Receipt. An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. bank to represent a specified number of shares in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas (Bodie, Kane, Marcus, 2008).
American Depositary Share. An American depositary shares (ADS) is U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issued by depository banks in the United States under agreement with the issuing foreign company (Bodie et al., 2008). The entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs (Bodie et al., 2008).
Business strategy. A business strategy is a general framework that provided guidance for taking business actions (Johnson Scholes, 2006). Pearce and Robinson (2009) stated that a business strategy was a large-scale, future oriented plan for a firm to interact with the competitive environment to achieve its business objectives and goals. The business strategy refers to the firms awareness of how, when, and where it should compete against whom it should compete and for what purposes it should compete.
Capabilities. Hunger and Wheelen (2007) stated that capabilities were a corporations ability to exploit its resources. Capabilities consist of business processes and routines managed by managers efficient interaction among resources to turn inputs into outputs. For example, a firms marketing capability can be based on the interaction among its managements of marketing, information technology, and its financial resources. A capability is functionally based and is resident in a particular function, such as marketing capabilities, manufacturing capabilities, and human resource management capabilities (Hunger Wheelen, 2007).
Carbon dioxide. Carbon dioxide (CO2) is emitted naturally through the carbon cycle, as well as through human activities like the burning of fossil fuels (Pernick Wilder, 2007). Natural sources of CO2 occur within the carbon cycle, in which the oceans and growing plants remove billions of tons of atmospheric CO2 from the atmosphere and release oxygen back into the atmosphere annually through natural processes. When in balance, the total CO2 emissions and removals from the entire carbon cycle are roughly equal (Pernick Wilder). Since the Industrial Revolution in the 1700s, however, human activities, such as the burning of oil, coal and gas and deforestation, have increased CO2 concentrations in the atmosphere. In 2005, global atmospheric concentrations of CO2 were 35 higher than they were before the Industrial Revolution (Pernick Wilder U.S. Environmental Protection Agency EPA, 2008a).
Crude oil futures. Crude oil futures are exchange-traded agreements calling for future delivery of a standard amount of crude oil at a fixed time, place, and price (Eiteman, Stonehill, Moffett, 2007).
Entrepreneur. An entrepreneur is a person who has possession of a company, enterprise, or venture and assumes significant accountability for its inherent risks and outcomes (Hisrich, 2006). The entrepreneur behaviors include initiative taking, the organizing and reorganizing of social and economic mechanisms to turn resources and situations to practical account, and the acceptance of risk or failure (Hisrich). The term entrepreneur is often synonymous with founder and applies to someone who creates value by offering a product or service. Entrepreneurs often have strong beliefs about a market opportunity and organize their resources to accomplish their goals and objectives and to catch the market opportunity. Entrepreneurs are willing to accept a high level of personal, professional or financial risk to pursue that opportunity and tend to be passionate experts (Hisrich).
Generic Strategies. A generic strategy of a firm refers to the fundamental philosophical option for the firms design of grand strategies (Pearce Robinson, 2009)
Global warming. Global warming is an average increase in the Earths temperature which causes changes in climate. A warmer Earth may lead to changes in rainfall patterns, a rise in sea levels, and a wide range of impacts on plants, wildlife, and humans (Massachusetts Technology Collaborative Renewable Energy Trust, 2008 Pernick Wilder, 2007). The Earths temperature has fluctuated over its 4.5 billion-year history, and cycles of global warming and cooling are a natural part of the Earths history (Sadler Klosterman, 2009). However, there is a near consensus among scientists that the current global warming is a real threat caused by human-made CO2 that is increasingly emitted into the atmosphere (Sadler Klosterman). As the Earth is becoming hotter, disasters like hurricanes, droughts, and floods are becoming more frequent (EIA, 2008 Pernick Wilder Sadler Klosterman).
Globalization. Hitt, Ireland, and Hoskisson (2008) stated that globalization was the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. Globalization is a product of a large number of firms competing against one another in global economies. In globalized markets and industries, financial capital might be obtained in one national market and used to buy raw materials in another one. Manufacturing equipment bought from a third national market can then be used to produce products that are sold in yet a fourth market. Thus, globalization increases the range of opportunities for companies competing in the current competitive landscape (Hitt et al.).
Grand Strategies. According to Pearce and Robinson (2009), a grand strategy is a master long-term plan of a firm that is aligned with its long term objective. It can be defined as a comprehensive general approach that guides a firms major actions.
Photovoltaic. Photovoltaic (PV) is the electricity from light. In essence, photovoltaic systems use daylight (not necessarily direct sunlight) to convert solar radiation into electricity. The light that shines on the PV cells creates an electric field, causing electricity to flow. The greater the intensity of the light presented, the greater the flow of electricity (Department for Business Enterprise and Regulatory Reform DEER, 2008).
Photovoltaic systems. A PV or solar cell is an electronic device and is the basic building block of a PV (or solar electric) system. An individual PV cell is usually small and typically produces 1 or 2 watts of power (U.S. Department of Energy, 2008a). To boost the power output of PV cells, installers can connect the PV cells together to form larger units called modules. Connecting modules together can form even larger units called arrays, which can produce more power. In this way, PV systems can be small or large, based on what is needed to meet any electric power need (U.S. Department of Energy).
Renewables. Renewable energies are the energies generated from natural resources, such as sunlight, wind, water, tides, biomass, and geothermal heat. These energy resources that are naturally replenished can be named renewables (EIA, 2009 U.S. Department of Energy, 2008b).
Solar energy. Solar energy, the radiant energy produced by the sun, can be used to provide electricity. Every day, the sun radiates an enormous amount of energy in fact, the sun radiates more energy in one second than human beings have used since the beginning of time (NEED National Energy Education Development Project, 2008).
Solar wafer. A solar wafer is a thin slice of semiconductor material. Solar wafers are the principal raw materials used to produce PV or solar cells (EIA, 2009).
Stakeholders. Wheelen and Hunger (2008) stated that stakeholders are groups of people who have interests in a business success. These groups of people include individuals and organizations such as stockholders, employees, customers, suppliers, competitors, and governmental agencies. These groups of people interact with the business. When a business operates, the business firm does not do so independently, and these groups that the business firm interacts with become integrated into the business. Therefore, these groups of people affect the business success or are affected by the achievement of the firms objectives (Wheelen Hunger, 2007).
Summary
For the proposed study, the research problem identified is the lack of effective strategies to expand solar energy businesses. This expansion is relevant to solar business efficiency and cost-effectiveness to gain sustainable competitive advantages (Pearce Robinson, 2009 Pernick Wilder, 2007). The proposed study will be exploring the effective strategies used and CSFs established by the four firms to expand solar energy businesses based on addressing the research questions for the research problem solving. The proposed study may provide additional awareness and education concerning the business strategies and CSFs that are effective to the success of firms in developing solar energy businesses and to the competition within the energy production industry. The results of the proposed study could be of interest to entrepreneurs, investors, bankers, and environmental protection agents involved in businesses related to developing solar energy and enhancing environmental protection.
CHAPTER 2 LITERATURE REVIEW
The research problem identified is a lack of effective strategies to expand solar energy businesses, which relates to improve business efficiency and cost-effectiveness to gain sustainable competitive advantages in the energy industry. The purpose of the proposed study is to explore, analyze, and evaluate strategies used and CSFs established by the four firms in expanding solar energy businesses. Three research questions identified will be addressed for the research problem solving with the qualitative case study design. Through implementing the qualitative case study, the research problem, purpose, and three questions identified will be considered as the literature reviews direction and guides in order to explore the effective strategies and CSFs in developing solar energy businesses.
The literature review is to make a proposal for the study and is the foundation of beginning the study (Hart, 2006). As the literature review underlies the study, the literature review will be demonstrating the solar energy business of history, interest, perspectives, concepts of generic and grand strategies, decision makers and decision making levels, strategy formulation and implementation, and CSF identification, refining the direction in the study and providing insights into the interest that are both methodological and substantive. In order to explore strategies used and CSFs established by the four Chinese solar energy firms, the literature review will be reviews of solar energy business literature and strategic management literature that relate to the research problem, purpose, research questions, and significance of the study. The sources of the literature review are relevant scholarly articles and governmental and institutional publications.
Utility of Solar Energy
Solar energy is the radiant energy produced by the sun, which can be used to provide electricity. The sun radiates more energy in one second than people have used since time began (NEED, 2008). Photovoltaic systems are through using daylight to convert solar radiation into electricity. The daylight that shines on the PV cells creates an electric field, causing electricity to flow therefore, the greater the intensity of the daylight presented, the greater the flow of electricity (DERR, 2008). A PV or solar cell is the basic building block of a PV (or solar electric) system. An individual PV cell is usually quite small, typically producing 1 or 2 watts of power (U.S. Department of Energy, 2008a). To boost the power output of PV cells, installers can connect the PV cells together to form larger units called modules, and connecting modules together can form even larger units called arrays, which can produce more power. Photovoltaic systems can be small or large, based on the needs of any residence or business (U.S. Department of Energy).
There are many solar products used for various purposes, including solar heating system, cooling system, water heating system, and pool heating system, solar park and road lightings, solar stoves, solar batteries, and solar-powered vehicles (China, 2009a U.S. Department of Energy, 2008a). Therefore, many of these solar products can be introduced to Chinas hill and flat countries and other developing countries where people cannot access to conventional electricity. For example, throughout Tibet, 400,000 solar stoves had been introduced, with one million users (China). As there are a wide range of solar products to be introduced and be developed, developing solar energy businesses should have a bright and green future.
History of Solar Energy Development
Humans have harnessed solar energy for centuries, from ancient Greek homes built to face the warm winter sun to advanced thin-film PVs (Southface, 2008). As early as the 7th century B.C., people used simple magnifying glasses to concentrate the sunlight into beams and ignite wood (NEED, 2007). More than 100 years ago, in France, a scientist used heat from a solar collector to make steam to drive a steam engine (NEED). In the beginning of the 20th century, scientists and engineers began researching ways to use solar energy in larger applications (Perlin, 2003). In 1936, Charles Greeley Abbott, an American astrophysicist, invented a remarkably efficient solar boiler, which gained popularity in the United States (NEED). The solar energy industry, which started in the early 1920s, was developed in hesitation before World War II, growing until the mid-1950s, when low-cost natural gas became the primary fuel for heating American homes (NEED Perlin).
In 1960, the first efficient solar cells were produced for use in the space industry. Elliot Berman who was an industrial chemist developed solar cells and significantly reduced the solar energy price from 100 per watt to 20 per watt in the 1970s (Perlin, 2003). In 1970, more solar PV modules were produced for use on Terra Firma than in space (Ewing, 2006). Since then, the use of PV modules has steadily increased, while the price has been driven down, being less than 4 per watt, still a little costly, but no longer out of reach (U.S. Department of Energy, 2009). As solar energy development has a long history, exploring effective business strategies and indentifying CSFs of developing solar energy are important.
Reasons for Developing Solar Energy Businesses
The research community, the public, and world governments remained largely indifferent to the possibilities of solar energy and other renewables until the oil shortages of the 1970s, when energy security concerns inspired government sponsorships of solar energy. The energy crises of years, 1973 to1974 and 1979 to 1980 had severe economic impacts on most industrialized countries (Runci, 2005). Consequently, the impacts caused solar energy sources as a potential means of alleviating the risks associated with heavy dependence on imports of fossil fuels (BWMi, 2005). The widespread use of solar energy as a clean, carbon-free, cost-effective source of electricity will occur with the development of a variety of PV technologies. Moreover, solar energy is easily to be used by incorporating PV systems into the structure of residential, commercial, or industrial buildings. Thus, Pernick and Wilder (2007) believed that developing solar energy businesses could be essential in economic development. In addition, developing solar energy businesses with PV technologies could help meet the diverse requirements of a number of market segments, including both distributed residential and utility-scale centralized systems (U.S. Department of Energy, 2008).
Scheer (2005) stated that the global economy was based on the exploitation of fossil fuels, which not only threaten massive environmental and social disruption through global warming however, at present rates of consumption, might deplete within decades, causing huge industrial dislocation and economic collapse. Even before then, the increasing consumption of fossil fuels may exacerbate conflicts in the Middle East and elsewhere (Scheer). The alternatives to the future can be renewable energies from renewable resources such as sunlight, wind, water, biomass, and geothermal energy (EIA, 2009).
Scheer (2005) contended that developing solar energy businesses would take a new industrial revolution and a new international world order to substitute renewable energy for fossil resources. The consumption of and reliance on fossil fuels causes ecological problems as well, including air pollution, destruction of the ozone layer, and increased toxicity of the environment (Gliksman, 2007). These problems have health consequences in a World Bank study, researchers predicted that 1.8 million people might die prematurely each year between 2001 and 2020 because of air pollution (Worldwatch Institute, 2005). Sweet (2008) opined that the probability of a severe accident related to fuel was far higher for all conventional energy options and only the renewable systems utilizing the energy of the sun and the wind were not susceptible to severe accidents.
Solar energy is replenishable and climate friendly, inasmuch as developing solar energy is to utilize natural cycles and systems to harness natural energy and create energy in a form ready for human consumption (Environmental Literacy Council, 2009). Solar energy and other renewable energy sources differ from fossil fuels. Solar and other renewable energy sources can be replenished and produce little CO2. Therefore, developing solar energy businesses can gain clean energy, reduce CO2 emissions, and improve the human environment (Environmental Literacy Council). Although relying on solar energy is not feasible as solar energy sources can be intermittent, solar energy can become more reliable on a large-scale basis with more research and development, such as developing various forms of solar energy storage (Environmental Literacy Council).
Bezdek (2009) stated that renewable energy was economically beneficial. Renewable energy and energy efficiency may drive significant economic growth in the world. For example, in 2007, the renewable industries in the United States generated 8.5 million new jobs, nearly 970 billion in revenues, more than 100 billion in industry profits, and more than 150 billion in increase of tax revenues of federal, state, and local governments (Bezdek). Therefore, developing solar energy businesses in China should have the same positive impacts on Chinese economic growth, which benefits the world economic development.
Fraass study (2005) revealed that developing solar energy businesses had benefits, including a cleaner environment, reduced carbon dioxide emissions thereby avoiding global warming, and creating more jobs. Bradford (2006) believed that solar energy revolution outlined the path by which the transition to solar energy technologies and sustainable energy practices would occur through adopting standard business and economic forecasting models. The shift from fossil fuels to solar energy will take place not because solar energy is better for the environment or energy security, or because of future government subsidies or yet undeveloped technology.
For example, since its beginning in the 1980s, the Chinese market for solar water heaters (SWH) has significantly increased to become the worlds largest SWH market (Meisen Hawkins, 2009). According to Crachilov, Hancock, and Sharkey (2009), in 2009, SWH systems have a gross collector area of over 125 million m2 and an annual output of 40 million m2 in China, ranked first in the world, while 90 of the systems are used in single households and 10 in schools, hotels, and restaurants. Altogether, over 30 million households in China use the systems. Installation of SWH in Chinese government and commercial buildings has also been promoted (Crachilov et al.). In fact, the solar energy revolution is already occurring through decisions made by Chinese governments, self-interested energy producers, and users.
Understanding Business Strategies
Johnson and Scholes (2006) stated that a business strategy was a general framework that provided guidance for taking business actions. By setting a business strategy, managers of a firm mean their large-scale, future-oriented plans for interacting with the competitive environment to improving the firms competitive position and achieve its objectives. A strategy is a firms game plan and an important function in achieving evolutionary success. Although this game plan does not precisely comprise all future deployments of people, finances, products, and marketing, the game plan forms a framework for managerial decisions (Pearce Robinson, 2009). A strategy reflects a firms awareness of how, when, and where it should compete against whom the firm should compete and for what purposes the firm should compete (Pearce Robinson).
Walker (2007) stated that a strategy generated three benefits for a firm. First, the strategy is an important source of economic gain for the firm inasmuch as the strategy matches the firms market position relative to the firms resources and capabilities. Market position entails both the amount and type of value offered to customers and the cost that the firm incurs to produce that values customers receive. The more value customers receive at a lower cost to the firm, compared to its rivals, the more productive the firm. As market dominance correlates with higher economic returns, an effective strategy is a determinant of economic gain (Walker).
Second, the strategy is a design of framework for a firms resource allocation (Walker, 2007). Based on finite resources, decision makers of the firm have to make choices between alternative opportunities and solutions. Clearly defining a business strategy helps decision makers to prioritize these opportunities and adopt consistent and self-reinforcing solutions to implement (Walker). Finally, the strategy with strategic thinking guides the firms decisions regarding management and organization. An understanding of the firms strategy can help decision makers create a focal point for decision making, which can be important in uncertain internal and external environments (Walker).
Pearce and Robinson (2009) stated that building effective strategies must center on delivering superior customer value through one of three value disciplines operational excellence, customer intimacy, or product leadership. Providing customers convenient and reliable products or services at competitive prices presents a firms operational excellence. Offering tailored products to match the demands of identified niches involves customer intimacy and thus benefits to build long-term customer relationships. Offering customers leading-edge products and services makes rivals goods obsolete.
Two kinds of business strategies are generic strategy and grand strategy. According to Pearce and Robinson (2009), Grand strategies indicate the time period over which long-range objectives are to be achieved. Thus, a grand strategy can be defined as a comprehensive general approach that guides a firms major actions (p. 200). The grand strategy must be based on a core idea about how a firm can best compete in the marketplace (Pearce Robinson). The core idea is a generic strategy. A generic strategy of a firm is the fundamental philosophical option for the firms design of grand strategies (Pearce Robinson). Then the generic strategy and grand strategies formulated by a firm are the direction and guides for the firms business growth and expansion.
Exploring Generic Strategies
As for generic strategies, many planners believe that any long-term strategy should derive from a firms attempt to seek a competitive advantage based on one of the following three generic strategies
Strive for overall low-cost leadership within an industry.
Strive to create and market unique products for varied customer groups through differentiation.
Strive to have special appeal to one or more groups of consumers or industrial buyers who focus on the product and service cost or differentiation concerns (Pearce Robinson, 2009).
Many businesses explicitly and all implicitly adopt one or two generic strategies characterizing their competitive orientation in the marketplace. The three fundamental options are low cost, differentiation, and focus strategies (Pearce Robinson). Enlightened managers seek to create ways that their firm possesses both low cost and differentiation competitive advantages as part of their overall generic strategy. The managers usually combine their firms capabilities with a comprehensive, general plan of major actions through which their firm intends to achieve its long-term objectives in a dynamic environment (Pearce Robinson).
Hunger and Wheelen (2007) believed that a firms competitive advantage in an industry was determined by its competitive scope that was the breadth of the target market of the firm. Before using one of the two generic competitive strategies of products with lower cost and product differentiation, the firm must choose the range of product varieties the firm will produce, the distribution channels the firm will employ, the types of buyers the firm will serve, the geographic areas in which the firm will market its products, and the array of related industries in which the firm will compete (Hunger Wheelen). These decisions should reflect an understanding of the firms unique resources. However, a firm can choose a broad target, aiming at the middle of the mass market, or a narrow target, aiming at a market niche (Hunger Wheelen).
Combining the two types of target markets with the two competitive strategies results in the four variations of generic strategies depicted in Figure 1. With a broad mass-market target, the lower cost and differentiation strategies are simply called cost leadership and product differentiation. For a firm to focus on a market niche with a narrow market target, its lower cost strategy can be a cost focus strategy. Otherwise, if the firm adopts the product differentiation strategy to focus on a market niche, the firm is to implement a differentiation focus strategy (Hunger Wheelen, 2007). Advocates of generic strategies contend that each of these options can produce above-average returns for a firm (Bowman, 2008).
Stonehouse, Campbell, Hamill, and Purdie (2005) stated that cost leadership was a low-cost competitive strategy that a firm adopted to aim at the broad mass market. Stonehouse et al. also stated that cost leadership required aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in business areas such research and development, operation, service, sales force, advertising, and distribution. The cost leader is able to charge a lower price for its products than its competitors and still make a satisfactory profit because of its lower costs. Having a low-cost position also gives a firm a defense against its rivals (Stonehouse et al.). Carpenter and Sanders (2009) stated that a firm that adopted a generic strategy of low cost leadership was able to produce a good or offer a service with total costs that were lower than what competitors costs were to offer the same product or service.
Hunger and Wheelen (2007) believed that the lower costs allowed a firm to increase its products market share and continued to earn profits during times of heavy competition with its high market share. The firms high market share allows the firm to have high bargaining power relative to its suppliers inasmuch as the firm buys in large quantities. The firms low prices also serve as a barrier to entry because few new entrants are able to match the leaders cost advantage. As a result, cost leaders are likely to earn above-average returns on investment.
Hunger and Wheelen (2007) stated that product differentiation was that a firm aimed at the broad mass market by involving the creation of a product or service that was unique throughout its industry. The firm may then charge a premium for its product. This specialty can be associated with design or brand image, technology, features, dealer network, or customer service. Hunger and Wheelen explained that product differentiation was a viable strategy for earning above-average returns in a specific business because the resulting brand loyalty lowered customers sensitivity to price. Increased costs can usually be passed on to the buyers. Buyer loyalty also serves as an entry barrier new firms must develop their own distinctive competence to differentiate their products in some way in order to compete successfully. Hunger and Wheelens research suggested that a differentiation strategy was more likely to generate higher profits than was a low-cost strategy because product differentiation could create a better entry barrier. However, a low-cost strategy is more likely to generate increases in market share.
Stonehouse et al. (2005) stated that cost focus was a lower cost competitive strategy that was to focus on a particular buyer group or geographic market and attempt to serve only this niche, to the exclusion of others. In using cost focus, decision makers of a firm seek a cost advantage in the firms target segment. The decision makers set cost focus strategy to match the quality of the firms well-known brands, but keep costs low by eliminating advertising and promotion expenses. Those who value the cost focus strategy believe that a firm that adopts a cost focus strategy is better able to serve its narrow strategic target more efficiently than its competition. The cost focus strategy, however, requires a trade-off between profitability and overall market share (Stonehouse et al.). Product differentiation focus is a differentiation strategy used to concentrate on a particular buyer group, product line segment, or geographic market (Stonehouse et al.).
However, Carpenter and Sanders (2009) had the similar thought about generic strategies but extended above four variations of generic strategies stated to five variations of generic strategies. Carpenter and Sanders stated generic strategies were strategic positions designed to reduce the effects of rivalry, including low-cost, differentiation, focused cost leadership, focused differentiation, and integrated positions with low-cost leadership and differentiation. Firms must capitalize on their resources and capabilities to exploit opportunities and formulate their business strategies in their competitive environments. Through the strategic positioning, management of a firm situates the firm relative to its rivals.
Pearce and Robinson stated that for a firm to use any of the generic strategies, the firms success hinged on a number of factors. For adopting a generic strategy, the firm must possess the right resources and capabilities and is able to fit with the industry conditions and the market environment. However, Stonehouse et al. (2005) believed that customers purchase decisions were driven much more strongly by price than by product features. Carpenter and Sanders (2009) believed that a successful strategic position must satisfy two requirements under most circumstances
(a) A firms strategic position must be based on the firms resources and capabilities.
(b) The firm must achieve some level of consistency with the conditions that prevail in the industry in order to succeed in the strategic positioning.
Based on the two requirements, there are some threats facing a firm with its specific strategic positioning. Carpenter and Sanders (2009) stated that low-cost leadership was to offer an acceptable combination of price and quality. A threat to an intended low-cost position is the failure to offer sufficient quality to satisfy buyers basic needs. Carpenter and Sanders revealed that some factors could sabotage a differentiation strategy. First, a differentiating feature that buyers do not care about merely increases costs without increasing willingness to pay, which cuts into profit margins. Second, failing to understand the total costs entailed by differentiation can derail a differentiation position. The cost of differentiation has no direct effect on customers willingness to pay, and in most industries, cost-plus pricing is not an option. Third, a firm with a differentiation position can fail with two additional reasons that are over-fulfillment and ease of imitation. Carpenter and Sanders explained that when product features exceeded buyer needs, the added costs to provide these unwanted features, coupled with customers lack of willingness to pay for this differentiation, resulted in significantly lower margins.
Although focused low-cost or focused differentiation positions are specialized cases of low-cost leadership and broad differentiation and thus respectively subject to the threats of low-cost leadership and broad differentiation stated in the previous paragraph, firms with a focused strategy face one additional threat (Carpenter Sanders, 2009). Firms that implement focus positions face the threat of being out-focused by competitors. A firm relying on a focus strategy may lose its advantage by attempting to grow and consequently attempt to meet the needs of too many customers. If that situation happens, a competitor or new entrant may then more successfully target the needs of the original focused group of customers (Carpenter Sanders).
According to Carpenter and Sanders (2009), firms must make decisions about positioning their products and will consequently choose one strategy over another. Developing a low-cost strategy means that a firm must forgo subsequent opportunities to enhance product uniqueness that is based on differentiation. In this respect, selected strategies and forgone opportunities must be regarded as tradeoffs. Stonehouse et al. (2005) indicated that firms that adopted an integrated position would end up straddling two inconsistent positions by incorporating differentiate with achieving a low-cost position. However, to adopt an integrated generic strategy of developing businesses in China can be a special case. In addition to there are surplus laborers in Chinese labor market, the prices of solar raw materials could have a decrease of 43 in 2009 and a decrease of 67 within next the 5 years as supply increases (Heimbuch, 2008). Solar energy business leaders may be able to implement an integrated generic strategy combined with low-cost leadership and product differentiation for their business growth. These leaders can enhance their training programs to train new workers while improving their research and development capability to develop new products for their business expansion.
Exploring Grand Strategies
Pearce and Robinson (2009) stated that a grand strategy was a master long-term plan that consists of the basic direction of a firm for its major actions directed toward achieving its long-term business objectives. Grand strategies indicate the period over which long-range objectives are to be achieved. Thus, a grand strategy can be defined as a comprehensive general approach that guides a firms major actions. Forgang (2008) stated that grand strategies refer to major actions through which a firms long-term goals are achieved (p. 132).
Pearce and Robinson (2009) described and discussed 10 major grand strategies that strategic managers should consider and presented approaches to the selection of an optimal grand strategy from the available alternatives. The 10 principal grand strategies are concentrated growth, market development, product development, innovation, horizontal integration, vertical integration, concentric diversification, conglomerate diversification, joint ventures, and strategic alliances (Pearce Robinson). Forgang (2008) stated that developing businesses with different business models should be selecting different grand strategies. In general, single business firms produce and sell goods and services in one industry. On the other hand, multibusiness firms consist of more than one business unit (Walker, 2007). Forgang stated that single business firms offered one good or service or a narrow set of products and multibusiness firms faced additional management challenges and opportunities.
Any one of the 10 principal strategies could serve as the basis for achieving the major long-term objectives of a single firm. As a firm involves with multiple industries, businesses, product lines, or customer groups, the firm may combine several grand strategies (Pearce Robinson, 2009). However, the 10 grand strategy options are relative to marketing, merger and acquisition (MA), and strategic alliances. However, developing solar energy businesses requires heavy investment. In addition to the 10 grand strategy options, having access to the global capital market to raise fund will be one more strategy option for developing solar energy businesses.
Gaining Access to the Global Capital Market
According to Eiteman, Stonehill, and Moffett (2007), global integration of capital markets generates opportunities for firms to have access to cheaper sources of funds beyond those available in their domestic markets. These firms can then accept more long-term projects and invest more in capital improvements and expansion for their business growth. Eiteman et al. indicated there were three kinds of capital markets that are a highly illiquid capital market, a small capital market, and a segmented capital market. Each of the three situations can cause lowering a business competitiveness both internationally and domestically.
If a firm must source its long-term debt and equity in a highly illiquid security market, the firm probably has a relatively high cost of capital and faces a limited availability of capital. To achieve the global lower cost and great availability of capital, decision makers of a firm can design and implement a properly strategy of gaining access to the global capital market (Eiteman et al., 2007). If a firm is with a small capital market, the firm sources its long-term debt and equity in its partially liquid domestic market. Although the firms cost of capital is lower than that firms in the highly illiquid security market, the firm with the small capital market can gain access to the high liquid global market to strengthen its competitive advantage in sourcing capital. Many factors such as excessive regulatory control, perceived political risk, anticipated foreign exchange risk, lack of transparency, and other market imperfections cause the situation of the segmented capital market (Bodie, Kane, Marcus, 2008). With a segmented capital market, decision makers of a firm must design a strategy to escape dependence on the segmented capital market for its long-term debt and equity needs (Eiteman et al.). There are many alternative solutions for firms to solve their illiquid problems of developing their long-term projects and expanding their businesses.
Most firms raise their funds in their domestic markets. Firms that raise their funds in the global market have an advantage of attracting foreign investors. Eiteman et al. (2007) thought that firms to develop their business worldwide should source capital abroad. These firms can start issuing international bonds and cross-list their stocks in the less liquid markets to attract international investors. These firms can also cross-list their stocks on a highly liquid foreign stock exchange such as London (LSE), NYSE, or NASDAQ. According to Bodie et al. (2008), to cross-list foreign stocks on NYSE or NASDAQ, American depositary receipts (ADRs) are required. American depositary receipts are sold, registered, and transferred in the United States and can be exchanged for the underlying foreign shares. Each ADR represents some multiple of underlying foreign share, which allows the ADR to possess a price per share conventional for the U.S. market (Eiteman et al.).
If a foreign firm wants its shares traded in the United States, American depositary receipts are created. The firm applies to SEC and a U.S. bank for registration and issuance of ADRs (Bodie et al., 2008). The use of ADRs increases the interest of U.S. investors in the share because ADRs turn foreign shares into quasi-U.S. shares with respect to the administration involved in holding ADRs and trading in ADRs. The use of ADRs also encourages foreign companies to go public in the United States (Eiteman et al., 2007). There are many foreign firms traded on U.S. exchanges. Entering, developing, and expanding solar energy businesses require heavy investments. For purpose of succeeding in developing solar energy businesses, having access to the global capital market or other highly liquid capital markets is an important strategy to minimize the costs of capital and maximize the access to raising funds of developing solar energy businesses.
Grand Strategies Relative to Marketing
Kotable and Helsen (2007) provided an overview of global marketing and analyzed and examined the economic and cultural environments, customer behaviors, marketing information systems, and entry and expansion strategies. Due to globalization, whether firms operate domestically or across national boundaries, the firms are under the competitive pressure with market opportunities from around the world. Thus, decision makers of a firm must optimize the firm with its market performance on a global basis. Firms are no longer able to avoid the competitive pressure and market opportunities. For optimal market performance, a firm should take advantage of resources on a global basis and at the same time responds to the different needs and wants of consumers. In a way, global marketing is a constant struggle with economies of scale and scope needs of a firm and its responsiveness and sensitivity to different market conditions.
Ferrell and Hartline (2008) revealed that strategic decision makers of a solar energy firm must understand the internal and external environments with the firms competitive position and customer relationship. Ferrell and Hartline also discussed product positioning and branding, product development, distribution management, supply chain management, strategic marketing, marketing ethics, and social responsibility in strategic planning. Ferrell and Hartline also provided insights about product strategy and development, distribution and supply chain management, customer relationship management, integrated marketing communications, and strategic marketing implementation and control. Therefore, these data are useful for analyzing the formulation of strategies of developing solar energy businesses.
Grewal and Levy (2008) stated that assessing the marketplace and understanding the marketplace could assist a firm in developing sustained strategic advantages. In value creation, value capture, and value delivery, a consistent integrated marketing communication message can build cooperation among employees and establish value in the minds of consumers. Grewal and Levy also provided information on understanding marketing management, capturing marketing insights, connecting with customers, building strong brands, shaping the marketing offerings, communicating and delivering values to customers, and creating successful long-term growth for competitive advantage. Laudon and Traver (2007) presented data on E-commerce and E-commerce business models, and the internet with World Wide Web. Building an E-commerce site with security and encryption, payment systems, marketing concepts, and marketing communications assist a firm to improve its business performance.
The grand strategies for marketing include concentrated growth, market development, product development, and innovation. The strategy of concentrated growth is that a firm directs its resources to the profitable growth of a single product line, in a single market, with a single dominant technology. This strategy can be called a market penetration or concentration strategy as the firm thoroughly develops and exploits its expertise in a delimited competitive arena (Pearce Robinson, 2009). Forgang (2008) stated that single business firms that had a narrow group of products in a single market usually adopted this strategy to seek long-term expansion in sales and profits.
Kerin et al. (2006) indicated that a market penetration strategy reflected a decision to achieve corporate growth objectives with existing products within existing markets. Adopting a market penetration strategy leads to enhanced business performance. The ability to assess market needs, knowledge of buyer behavior, customer price sensitivity, and effectiveness of promotion are characteristics of implementing a concentrated growth strategy with the market penetration. These core capabilities are important determinants for a firms competitive market success than are the environmental forces facing the firm (Pearce Robinson, 2009). The market penetration typically necessitates an aggressive marketing strategy through increasing marketing communications, implementing integrated sales promotion programs, lowering prices, or taking other actions intended to generate more revenues and profits (Kerin et al.). Forgang (2008) believed that deeper market penetration could help a firm build a long-term customer relationship with existing customers and pursuing new customers within existing markets.
Market development comprises geographic expansion and the creation of new uses and users of the product (Forgang, 2008). Pearce and Robinson (2009) stated that market development commonly ranked second only to concentration as the least costly and least risky of the 10 grand strategies. To use a market development strategy, a firm can capture a larger share of an existing market with current products through market saturation and market penetration and develop new markets for current products (Hunger Wheelen, 2007). Pearce and Robinson explained that the use of market development strategy could be marketing existing products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion. For examples, firms that open branch offices in new markets are practicing market development. Likewise, if decision makers of a firm switch their firms advertising in trade publications to advertising in newspapers, the firm is practicing market development strategy. Thus, Forgang believed decision makers of a firm who pursued a market development strategy made decisions to achieve particular outcomes through prioritizing alternative uses of finite organizational resources.
Pearce and Robinson (2009) stated that product development strategy involved the introduction of new products or the substantial modification of existing products but related products that could be marketed to current customers through established channels. The product development strategy is based on the penetration of existing markets by incorporating product modifications into existing items and by developing new products with a clear connection to the existing product line. Using the product development strategy, a firm can develop new products for existing markets and new markets (Hunger Wheelen, 2007). However, developing new products internally and successfully introducing them into the marketplace often requires significant investment of a firms resources, including time consuming, resource allocation, and expected profitable return (Hitt et al. 2008).
Pearce and Robinson (2009) revealed that through adopting the strategy of innovation, managers of a firm sought to reap the premium margins associated with creation and customer acceptance of a new or greatly improved product or service. Consumers expect periodic changes and improvements in the products offered. As a result, decision makers of firms find the change and improvement profitable and make innovation their grand strategy. The underlying rationale of the grand strategy of innovation is to create advanced technology trends and maintain competitive advantages (Hitt et al., 2008).
Like other businesses, implementing marketing strategies to develop solar energy business is imperative, and studying consumer behavior helps solar marketers increase their chances of success. Understanding consumer behavior is the foundation of implementing marketing strategies (Peter Olson, 2006). In order to succeed in expending solar energy businesses, solar energy business leaders can satisfy consumer needs and wants by improving research and development capability and promoting innovation to provide value added products and services and enhance business presence in various markets.
Grand Strategies Relative to Mergers and Acquisitions
A vast empirical literature has sought to uncover the internal and external forces leading to mergers and acquisitions (MA) including managerial self-interest, a market for corporate control, and economic efficiency (Beard, 2007). Beard also found that the use of the MA vehicles facilitated retaining valuable human capital from one another in the merger or from the acquired firm. Thus, operator knowledge is retained, non-compete constraints are placed on these individuals, and the retained human capital has the incentive to put forth optimal effort after MA. However, the evidence implies that macroeconomic variables are important in determining the timing of MA (Block Hirt, 2008). Specifically, MA activities were found to be highly pro-cyclical, slightly leading the business cycle (Andrade Stafford, 2004). Some research has documented a positive relation between MA activities and factors, such as economy-wide dispersion in Tobins Q that is the ratio of the market value of a firms assets as measured by the market value of its outstanding stock, and debt to the replacement cost of the firms assets and industrial production (Block Hirt)
On the empirical side, contributions in corporate finance and industrial organization have since long pointed out that MA activities can be substantial in restructuring industries and that their consequences go far beyond a mere change in ownership (Block Hirt, 2008). Andrade and Stafford (2004) stated that decision makers frequently used MA for business expansion and complement. Comparisons of empirical studies also show that acquisitions similarly result to other forms of investment in terms of abnormal stock market returns (Andrade Stafford). On the targets side, takeovers usually bring large abnormal gains in share prices and most acquired assets show significant increases in productivity (Block Hirt).
Finally, a number of recent studies have succeeded in directly linking increases in MA activities to domestic shocks like deregulation and financial innovation (Block Hirt, 2008). For examples, the Energy Policy Act of 1992, as U.S. federal deregulation, facilitated entry and competition in wholesale power generation and removed barriers to ownership in the U.S. utility sector (Becher, Mulherin, Walkling, 2008). Subsequent actions by both the Federal Energy Regulatory commission (FERC) and the Securities and Exchange Commission (SEC) led to further easing of Depression-era restrictions on geographic and operating scope of business firms (Beard, 2007 Becher et al. Block Hirt). Denis and Shome (2004) showed that takeover was motivated by the need to prevent an impending crisis and tended to involve larger firms struggling for survival. Powell and Yawson (2008) also presented information in linking increases in MA activities to broad economic shocks, deregulation, and foreign competition.
Literature on MA subjects has also sought solutions to solve problems happened in the MA activities. As MA activities cause a difficult environment for investors to evaluate the resulting firms value, the valuation implications of earnings have been exacerbated by the fact that earnings can be calculated differently based on methods of accounting for the merger or acquisition, causing the quality of earnings under these methods to vary (Block Hirt, 2008). On June 29, 2001, the Financial Accounting Standards Board addressed this by issuing two new standards that are SFAS No. 141 for Business Combination and SFAS No. 142 for Goodwill and Other Intangible Assets, concerning accounting for MA. The two standards require all business combinations adopt a non-amortization approach to goodwill under the purchase method by eliminating pooling of interests method. Christian and Jones (2004) indicated, however, additional charges, write-offs and selling or disposing of assets that were allowed under the purchase method would continue to take place in the year of MA, requiring investors to be cautious when examining the firms current year earnings in an attempt to explain future cash flows.
Terranova (2007) described a process for assessing and communicating the cultures of MA to prepare managers for their role in the post-merger or post-acquisition world and to improve the odds that the MA would be a success. This approach is originally based on collecting data primarily through one-on-one interviews. Terranova also stated how an interactive exercise was developed and how the data was shared with managers to improve the transition to a post-merger or post-acquisition firm.
Mergers and acquisitions activities are strategic financial activities in the implementation of a firms business strategy and respectively a form of business combination that can be horizontal, vertical, and conglomerated (Block Hirt, 2008). Horizontal MA combine firms that competed with one another at the same stage of production into a single new firm. Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets (Block Hirt). Vertical MA that are more common in producer-goods industries take the entire production process, from raw materials to the end-finished product, and combine them together under single ownership (Pearce Robinson, 2009). A firm can increase the predictability of demand for its output through forward integration that is, through ownership of the next stage of its production-marketing chain. Some increased risks are associated with both types of integration (Forgang, 2008). For horizontally integrated firms, the risks originate from increased commitment to one type of business. For vertically integrated firms, the risks arise from the firms expansion into areas requiring strategic managers to broaden the base of their competencies and to assume additional responsibilities (Gole Morris, 2007).
Pearce and Robinson (2009) revealed that concentric diversification involved business MA activities related to acquiring firm in terms of technology, markets, or products. By using this grand strategy, the selected new businesses possess a high degree of compatibility with the firms current businesses. The ideal concentric diversification presents that the combined corporations profits, strengths, and opportunities are increased and the combined corporations weaknesses and exposure to risk are decreased (Gole Morris, 2007). Thus, the acquiring firm searches for new businesses whose products, markets, distribution channels, technologies, and resource requirements are similar to but not identical with its own, whose acquisition results in synergies but not complete interdependence (Block Hirt, 2008).
Conglomerated MA activities comprise different business areas together operating as a corporation. Mergers and acquisitions activities are accounted for using the purchase method of accounting with a non-amortization approach to goodwill (Block Hirt, 2008). Grand strategies involving either concentric or conglomerate diversification represent distinctive departures from a firms existing base of operations, typically MA with synergistic possibilities counterbalancing the strengths and weaknesses of the two businesses. Mergers and acquisitions activities have one common goal of creating synergy that makes the value of the combined firms greater than the sum of the two parts. The success of a merger or acquisition depends onwhether this synergy is achieved (Block Hirt).
Mergers and acquisitions are important activities in the corporate finance. Solar energy business leaders can adopt MA activities to improve solar energy business profitability, future cash flows, and competitive position. These MA activities can help streamline and expanding the solar business existing activities, acquire solar energy technologies and skilled labor of the target, and penetrate new markets. The solar energy business leaders can also increase the markets awareness of their business activities and value through MA activities.
Grand Strategies Relative to Strategic Alliances
Carpenter and Sanders (2009) stated that a strategic alliance was a partnership in which two or more firms combined resources and capabilities with the goal of enhancing mutual competitive position to gain a competitive advantage. An alliance may involve sharing resources related to only one key activity in the partners value chain, such as marketing alliance for improving the distribution system (Pearce Robinson, 2009). Firms that participate in effective alliances can improve their competitive position and gain competitive advantage. Through using an alliance strategy, firms can achieve their objectives in several ways. Carpenter and Sanders believed that alliance strategies could help firms spread the risk of business ventures by sharing that risk with other firms Alliance strategies also gave firms access to knowledge, resources, and capabilities that the firm might lack. As using alliance strategies, firms can achieve these potential building blocks of competitive advantages in four ways joint venture, knowledge sharing, complementary resources, and effective management.
Although Carpenter and Sanders (2009) considered that joint venture was a kind of strategic alliance, Pearce and Robinson (2009) stated that joint ventures were distinguished from strategic alliances. Firms involved in strategic alliances do not take an equity position in one another. Strategic alliances are partnerships that exist for a defined period during which partners contribute their skills and expertise to a cooperative project. Strategic alliances are synonymous with licensing agreements (Pearce Robinson). Licensing involves the transfer of some industrial property right from a licensor to a motivated licensee. Most tend to be patents, trademarks, and technical know-how that are granted to the licensee for a specified time in return for a royalty and for avoiding tariffs or import quotas (Pearce Robinson). Outsourcing is a rudimentary approach to strategic alliances that enables firms to gain a competitive advantage (Pearce Robinson).
In fact, strategic alliances can be various, which can include combining financial, technological, and human and material assets with alliances of joint ventures, outsourcing, licensing, supply agreement, market network sharing agreement, and post-sale service agreement. To adopt strategic alliances, solar energy business firms can cooperate with stronger and better known firms to promote their competitive positions. However, strategic alliances can be costly. For example, when two partners establish an alliance, the two partners need to invest in the alliance, manage the alliance, and resolving possible conflicts of interest between the two partners over the functioning of the alliance.
Identifying Critical Success Factors
Pearce and Robinson (2009) posited that firms were successful for other reasons and suggested that identifying CSFs allowed solar energy business firms to focus their efforts on building their capabilities in order to meet their missions and objectives, which related to how firms created effective grand strategies of developing solar energy businesses. CSFs are the key areas of activity in which results are favorable in order for a developing solar energy business to reach its objectives and long-term goals. The key areas are areas where actions must be taken well in order for the business to flourish, for the strategy to be implemented successfully, and for objectives and goals to be attained (Caralli, 2004). Carpenter and Sanders (2007) stated that CSFs were key assets or requisite skills that all firms in an industry must possess in order to be a viable competitor.
In general, there are following five basic types of CSFs
(a) Industry CSFs, resulting from specific industry characteristics, such as marketing orientation, organizational learning orientation, entrepreneurial management style and organizational flexibility (McShane Von Glinow, 2005)
(b) Strategy CSFs, resulting from the chosen competitive strategy of the business
(c) Environmental CSFs, resulting from economic or technological changes
(d) Temporal CSFs, resulting from internal organizational needs and changes and
(e) management-position CSFs, resulting from the managerial concentration of each level management (Caralli, 2004).
In addition to the five basic types of CSFs, Carpenter and Sanders (2007) stated that CSFs in an industry might include the following
(a) The ability to meet competitive pricing in the energy industry
(b) Extensive distribution capabilities, including ownership of retail outlets in the marketplace
(c) Marketing skills to raise consumer brand awareness in the marketplace
(d) A broad mix of products, including residential and business uses
(e) Global presence and
(f) Well-positioned capacities in operations.
Wheelen and Hunger (2008) stated that within any industry there were usually certain variables called CSFs that a firms management must understand in order to be successful. However, business strategies of a firm are important in establishing CSFs for the firm to compete in its industry. CSFs can significantly affect the overall competitive positions of firms within any particular industry. CSFs typically vary from industry to industry and are crucial to determining a firms ability to succeed within the firms industry. The CSFs are usually determined by the economic and technological characteristics of the industry and by the competitive weapons on which the firms in the industry have built their strategies (Wheelen Hunger). In the solar energy industry, firms must achieve low costs and create new products by innovating and developing solar energy technologies and must have a strong presence in the international market through building effective distribution channels. The firms must also offer installation and after-sale services. As solar energy users expect reliability and durability in the use of solar energy systems, solar energy firms must have excellent research and development with innovation and must provide excellent customer services to build a long-term customer relationship.
Complexity and Diversity with Possible Grand Strategic Choices
Like other businesses in the energy-production industry, solar energy firms attempt to generate profits, to compete with other energy firms, and to move toward globalization. Pearce and Robinson (2009) categorized grand strategies for firms that attempted to generate profits and to move toward globalization in terms of the degree of complexity of each foreign market and in terms of the diversity of a firms product line. Complexity refers to the number of CSFs that is required in order to prosper in a given competitive arena when a firm must consider many such factors, the requirements of success increase in complexity (Pearce Robinson). Diversity, the second variable, refers to the breadth of a firms business lines such that, when a firm offers many product lines, diversity is high. Together, the complexity and diversity dimensions form a continuum of possible strategic choices, and combining these two dimensions highlights many possible actions (Pearce Robinson). Figure 2 indicates an example of complexity and diversity with a continuum of possible strategic choices.
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Figure 2. An example of complexity and diversity with possible strategic choices
From Strategic Management, 11th Ed., by J. A. Pearce, and R. B. Robinson, 2009. Copyright 2009 by McGraw-Hill. Adapted with permission of the authors.
Strategy Makers on Different Strategy Levels
Pearce and Robinson (2009) believed that strategic decisions had an impact on a firm and required large commitments of the firms resources. Top managers must give final approval for strategic action. The ideal strategic management team includes decision makers from all three-company levels, including the corporate level, business unit level, and functional level (Pearce Robinson). Therefore, the decision makers are the chief executive officer (CEO), the division managers, and the heads of functional areas. Therefore, the decision makers obtains input from different departments and from lower-level managers and supervisors that provide data for strategic decision making and then implement strategies (Pearce Robinson).
Forgang (2008) stated that there were two alternative structures with the three strategy levels. As the decision-making hierarchy of a firm typically contains three levels, at the top of this hierarchy is the corporate level, composed principally of a board of directors and the chief executive and administrative officers. These corporate decision makers are responsible for the firms financial performance and for the achievement of nonfinancial goals, such as enhancing the firms image and fulfilling its social responsibilities. To a large extent, attitudes at the corporate level reflect the concerns of stockholders and society at large (Pearce Robinson, 2009).
In a multibusiness firm, corporate level executives determine the businesses in which the firm should be involved. The executives also set objectives and formulate strategies that span the activities and functional areas of the corporate businesses (Pearce Robinson, 2009). Corporate-level strategic managers attempt to exploit their firms core competencies by adopting a portfolio approach to the management of the corporate businesses and by developing long-term plans, typically for a 3 to 5-year period (Pearce Robinson). For example, a key corporate strategy of solar energy business operations should involve direct sales to high-volume corporate accounts and developing an expansive network in the international arena instead of setting up operations overseas. For expanding solar energy businesses, a firms long-term strategy should be to form direct associations with national companies within foreign countries to expand its solar energy businesses.
Wheelen and Hunger (2008) stated that the middle of the decision-making hierarchy was the business unit level, composed principally of business and corporate managers. These managers must translate the statements of direction and intent generated at the corporate level into concrete objectives and strategies for individual business divisions (Pearce Robinson, 2009). In essence, business unit level strategic managers determine how the firm will compete in the selected product-market arena. The strategic managers strive to identify and secure the most promising market segment within that arena. This segment is the piece of the total market that the firm can claim and defend because of its competitive advantages (Pearce Robinson).
At the bottom of the decision-making, the low hierarchy is the functional level (Wheelen Hunger, 2008). Functional decision makers are managers of product, geographic, and functional areas. The functional decision makers develop annual objectives and short-term strategies in such areas as production, operations, research and development, finance and accounting, marketing, and human relations. However, their principal responsibility is to implement or execute the firms strategic plans (Pearce Robinson, 2009). Whereas corporate and business unit level managers center their attention on doing the right things, managers at the functional level focus on doing things right. Thus, functional managers address issues as the efficiency and effectiveness of production and marketing systems, the quality of customer service, and the success of particular products and services in increasing and enhancing the firms market shares and profitability.
Creating Effective Strategies
As developing solar energy businesses will bring a clean and bright future, creating effective strategies is essential to creating excellent cash position, improving solar business efficiency and cost-effectiveness, enhancing solar business capabilities, and gaining sustainable competitive advantages in the energy industry. Walker (2007) provided insights about how strategic decision makers of firms create strategies to build sustainable competitive advantages for their business expansions. To create effective strategies of developing solar energy businesses, strategic decision makers of solar energy firms should analyze internal sources and capabilities and the industry, competitors, and global economic trends based on their missions and long-term objectives in order to make sound decisions for strategic business choices, implementation, and control.
Hunger and Wheelen (2007) stated that a business sustained competitive advantage was primarily determined by its resource endowments and listed a five-step as a resource-based approach for decision makers to conducting the strategy analysis with strategic management
(a) Identifying and classifying the firms resources in terms of strengths and weaknesses.
(b) Combining the firms strengths into specific capabilities known as core competencies.
(c) Appraising the profit potential of these capabilities and competencies in terms of their potential for sustainable competitive advantage and the ability to harvest the profits resulting from their use.
(d) Selecting the strategies that best exploits the firms capabilities and competencies relative to external opportunities.
(e) Identifying resource gaps and investing in upgrading weaknesses (Hunger Wheelen).
However, Pearce and Robinson (2009) indicated that decision makers of a firm must complete nine tasks that could be a strategic management cycle in order to create effective business strategies. The nine tasks are addressed as follows
Understanding the firms mission, including broad statements about its purpose, philosophy, and goals.
Conducting an analysis that reflects the firms internal conditions and capabilities.
Assessing the firms external environment, including both the competitive and the general contextual factors.
Analyzing the firms strategy options by matching its resources with the external environment.
Identifying the most desirable strategy options by evaluating each option in light of the firms mission and long-term objectives.
Selecting a set of grand strategies that will help the firm to achieve its most desirable long-term objectives.
Developing short-term strategies for reaching the firms annual objectives, which should be compatible with its generic strategy, grand strategies, and the most desirable long-term objectives.
Implementing the strategic choices by means of budgeted resource allocations in which the matching of operations, people, structures, technologies, and reward systems is emphasized.
Evaluating the success of the strategic process as an input for future decision making (Pearce Robinson).
As these nine tasks indicate, formulating effective strategies involves the planning, directing, organizing, and controlling of a firms strategy-related decisions and actions.
Caralli (2004) stated that every firm had a mission that formulated why the firm existed (its purpose), what direction the firm intended to go, and what goals the firm wanted to reach. The mission reflects the firms unique values and vision. Strategic decision makers at the firm must establish business goals and objectives associated with the firms mission. However, achieving goals and objectives is not enough. Caralli believed that the firm must perform well in key areas on a consistent basis to achieve the mission. These key areas unique to the firm and the industry in which it competes can be defined as the firms CSFs. Thus, identifying CSFs is a means for understanding these important elements of success (Caralli).
Cost-effectiveness of Developing Solar Energy Businesses
Fraas (2005) contended that the cost of solar energy should be subsidized because of its long-term social benefits, including a cleaner environment and reduced carbon dioxide emissions. Fraas also suggested that major governments worldwide should fund research in university and government laboratories in an effort to find breakthroughs that then can make solar energy economical. Fraas stated that researchers had already made the breakthroughs required for making solar energy potentially cost-competitive, including a 35 efficient solar cell and other developments. In addition, over the last two decades, the trend of solar energy prices has been consistently downwards, driven bycontinuously developing advanced PV technology, building marketing and distribution alliances in the energy industry, and manufacturing economies of scale (Pernick Wilder, 2007).
The economic development must be dependent on plentiful and reliable sources of clean energy at reasonable prices. Although solar energy is not the sole source, this renewable energy option can make an important contribution to the economies of the world (Hamer, 2006). Electricity from the sun is a versatile technology that can be used for applications from the small to the large, from grid-connected systems to grid-independent systems, to hot water, space and industrial process heating, and power plants. The modular nature of the PV technology enables solar energy workers to construct distributed electricity-generating systems in increments as demands grow, to improve supply reliability, and to moderate distribution and transmission costs (U.S. Department of Energy DOE, 2009).
Although Bradford (2006) believed that, over the next two decades, solar energy would increasingly become the best and cheapest choice for most electricity and energy applications. However, the solar energy industry was shadowed by lacking cost competitiveness with technology development, economy of scale, and cost-effectiveness (Datamonitor, 2008 EIA, 2007a). Because of heavy competition with conventional and well-entrenched energy industries such as oil, coal, and gas, solar energy businesses have to lower their expenses while differentiating their existing products and innovating new products, which require heavy investments in technology improvements and becoming more efficient in the production process (Pearce Robinson, 2009). The technology development, economy of scale, and cost-effectiveness might be restricting such efforts for the development of solar energy. The shortage of trained workers has also caused cost pressure on solar energy businesses, as several new firms began competing with major manufacturers for the same work force (EIA, 2007a). However, Chinese solar energy business leaders are playing a leading role in reducing costs of solar materials and products (Bradsher, 2009).
Solar Energy Business Perspectives
Nansen (1995) stated that taking full advantage of solar energy would help to stop the environmental degradation and to support the economic development. The humankind future is dependent on abundant, low-cost energy that will not destroy the world (Pernick Wilder, 2007). Solar energy is the source to be available, non-depletable, and environmentally cleans, although it is not low-cost yet. However, making an investment in the future will help create low cost solar energy over the long term (Nansen, 1995 Pernick Wilder).
Hamer (2006) believed that the development of solar energy could help fuel the future because sunlight offered a reliable source of clean energy based on the development of solar technologies. Hamer asserted that developing solar energy technologies and businesses would create new jobs for a society and would save consumers money, in addition to benefitting the environment. According to Heckeroth (2008), a solar energy economy was developed well within the worlds reach, and the future would be bright and green. Developing solar energy is the use of powerful concentrating solar power technology. Simply incorporating passive solar design strategies, energy efficiency, conservation and other active solar heating strategies in the construction of buildings can save up to 95 of energy used in conventional buildings. With the addition of building-integrated PV systems, building can be turned into net energy producers. Energy from the sun can be used to power all kinds of vehicles as well.
Although solar energy technologies and green buildings have become important due to environmental awareness about global climate change, the real reason behind their increasing profile is economics (Pernick Wilder, 2007). When clean energy sources begin to rival traditional ones on a cost basis, which has emerged since 1960s because of advances related to the microchip and economies of scale, business leaders will notice the advances (Gomulka, 1990 Pernick Wilder). Pernick and Wilder, who profiled the leading companies involved in the most promising of these alternative energies, commented that energy innovations represented just one of the many technological developments taking place in expanding solar energy businesses. These developments include everything from incremental improvements in the most abundant form of electricity from silicon-based solar photovoltaic to new nonsilicon forms of solar electric generation. Pernick and Wilder also indicated that the solar energy businesses were well developing with a range of new companies and business models, offering opportunities for qualified researchers, entrepreneurs, engineers, mangers, and workers to join current efforts in solar technology in related business research and development, manufacturing, financing, installation, system integration, and elsewhere along the solar energy value chain.
Based on standard business and economic forecasting models, Bradford (2006) believed that solar energy would increasingly become the best and cheapest choice for most electricity and energy applications over the next two decades. Bradford also stated that the shift to solar energy might be inevitable and would be as transformative as the last centurys revolutions in information and communication technologies. Bradford also outlined the path by which the transition to solar technologies and sustainable energy practices would occur. Therefore, exploring effective strategies and indentifying CSFs of developing solar energy businesses are important for solar energy businesses expansion.
Summary
The literature review involves the emergence of the use of solar energy, the importance of developing solar energy businesses, effective strategies used in businesses, and CSFs for developing core business competencies. In addition, the literature review comprises the views of business experts and researchers on the determinant business strategies, the factors behind the ultimate success of those strategies, strategy makers with strategy levels, and historical perspectives of developing solar energy businesses. Based on the literature review, firms that develop solar energy businesses face many challenges, so exploring strategies and identifying CSFs for expanding solar energy businesses are the priority considerations in the proposed study.
These challenges facing firms to develop solar energy businesses include entrenched interests that support fossil fuels over clean energies, shortsighted policies and incentives that disrupt growth, nonuniformity among utility districts that makes consistent standards and protocols nearly impossible, and cost barriers that keep solar energy products and services from reaching cost parity with retail electric rates (Pernick Wilder, 2007). Next, globalization and technology trends continue to intensify competition and increase external environmental uncertainties for firms that are developing solar energy businesses, and these trends will put greater pressure on profitability and make strategy formulation more difficult (EIA, 2007a). Finally, developing solar energy businesses requires heavy investment in research and development and expansion of the distribution and sales network in new markets (Pearce Robinson, 2009). According to Pernick and Wilder, however, developing solar energy businesses are in a unique position to overcome many of these challenges and to change the world in ways not even imagined by researchers.
Chapter 3 Research Method
The purpose of identifying the research method is to make clear the conduct of the qualitative study so that the audience can clearly understand the study methodology. This chapter is an explanation of the research design aligning with the research problem, studys purpose, and research questions. This chapter also contains research subjects (particularly the four Chinese firms) , instrumentation, discussion of data collection and processing, methodological assumptions, limitations, delimitations, and ethical assurances associated with the study.
For the proposed study, the research problem will delve on the lack of strategies for expanding solar energy businesses which relates to cost-effectiveness of gaining sustainable competitive advantages. The purpose of the proposed study is to explore, analyze, and evaluate the strategies and CSFs in expanding solar energy businesses using data from SEC filing documents of four Chinese firms. Research questions are the studys directions and guides designed to meet the purpose of the proposed qualitative case study for the research problem solving. To focus on the concepts of generic and grand strategies and CSFs of developing solar energy businesses, the research questions are open-ended, evolving, and non-directional. The generic strategy refers to fundamental philosophical options for the firms design while grand strategies refer to more comprehensive strategies employed by the firm. A generic strategy of a firm is the fundamental philosophical option for the firms design of grand strategies (Pearce Robinson)
The research questions are beginning with what or how to restate the study purpose in more specific terms (Creswell, 2008). Yin (2008) indicated that research questions could be exploratory and questions beginning with how or why are likely to favor the use of case studies. A researcher should ask one or two central questions followed by no more than five sub-questions, and these sub-questions can narrow and clarify the focus of the qualitative case study (Creswell). There is one central research question followed by three sub-questions in the qualitative case study. The central question is How do Chinese firms expand solar energy businesses Based on the central research question with consideration to the given principles, the following three sub-questions will be addressed in the qualitative case study.
Q1 What are generic strategies used by Chinese firms to develop solar energy businesses and how are they being employed
Q2 What are various grand strategies implemented to expand solar energy businesses and how are they being employed
Q3 What internalexternal factors are essential for Chinese firms to develop solar energy businesses
To address the research questions, the proposed study will be employing a qualitative case study design. As the four Chinese solar energy firms are traded on NYSE, the data for the proposed study will be collected from SEC filing documents of the four firms and relevant journal articles. The SEC filing documents include IPO documents, announcements of strategic implementation and performance, and quarterly and annual financial reports.
Research Method and Design
Qualitative research refers to emphasizing exploration rather than prescription or prediction (Creswell, 2008). A qualitative design is utilized based on the notion that qualitative methods are preferred to gain new perspectives and to gain more in-depth information that may be difficult to be conveyed quantitatively (Shank, 2006). According to Shank and Creswell, the research design is qualitative as the exploration of historical document data is an appropriate qualitative research approach. In addition, to adopt the qualitative research is due to the proposed study is an exploratory study that is the most common qualitative research (Shank, 2006). Finally, the qualitative method is employed due to the generally numerically unquantifiable nature of business strategies used and CSFs established by the four firms to expend solar energy businesses and the importance of gaining in-depth knowledge regarding the research problem, purpose, and questions. The research design will not depend on financial data produced but rather on the results of strategies employed by the company. While results can be interpreted using financial data, this will not give ample information on how effective the strategies employed are as well as other important factors that concern the strategy. The strategies will be better understood if evaluated and analyzed in the qualitative context.
The studys purpose is to explore, analyze, and evaluate the strategies used and CSFs established by four firms in expanding solar energy businesses in a specific setting through the collection of qualitative data. Because of this, quantitative methodologies such as variance analysis, correlation coefficients, or regression analyses cannot be employed in the study. As the study will be to focus on the qualitative data collection from SEC filing documents of the four firms and relevant articles, conducting the study relies on the depth of analyzing and evaluating the SEC filing documents of the four firms and relevant published journal articles to address the research questions for the research problem solving. The quantitative data support the qualitative evaluation of business performances of the four Chinese solar energy firms. Evaluation of the qualitative data will be the means of interpretation to establish an exploratory understanding of the importance of business strategies and CSFs in the development of solar energy businesses under the data collection and analysis.
Case study is an exploratory research technique used to investigate one or a few situations similar to the research problem (Zikmund, 2009). The case study design is used to examine the subject in its functional environment and has been a common research strategy in business research (Yin, 2008 Zikmund). Case study is the method of choice when the phenomenon under study is not readily distinguishable from its context, such as a project or a program in an evaluation study (Yin). The proposed study is a project through investigating similar situations to the research problem by using SEC filing documental data of four Chinese firms to analyze and evaluate strategies and CSFs in expanding solar energy businesses.
Although case study designs have not been codified, case studies are relying on analytical generalization (Yin, 2008). Through careful evaluation and analysis of similar situations, researchers can identify actual problems, recognize participants and their agendas, and become aware of the aspects of the situation that contribute to the problems (Trochim Donnelly, 2007). With analytical generalization, researchers have their own analyses of the problems under their own consideration, develop their own solutions, and apply their own knowledge of theory to these problems (Trochim Donnelly). The researchers can also grasp a better understanding of the circumstances giving them the ability to analyze and to master what should be done in a certain scenario (Trochim Donnelly).
As adopting the qualitative method for the proposed study, the postmodern framework with constructivism and interpretation should best fit with the case study strategy. By employing the qualitative case study design with a postmodern framework, the proposed study can display analysis of the research problem through developing solutions, building the knowledge of theory, and addressing the research problem based on the evaluation of SEC filing documents of four Chinese solar energy firms (the reality) and relevant articles. Results of the case study may help readers understand real-world problems, situations, and crises by analyzing phenomena within the real-life context and by using multiple sources of evidence and benefits from the prior development of theoretical propositions to provide an approximation of developing a solar energy business environment. Therefore, employing the qualitative case study design will be appropriate for the study.
Participants
To conduct the proposed case study, data collection will entail gathering and organizing data in a systematic way to reduce sources of bias and increase validity (The Prime II Project, 2008). Selection of Chinese solar energy firms as the studys subjects is following two case study models and a pattern-matching procedure. Yin (2003) used a case study to select three universities as his studys subjects to evaluate city development through education to create a skilled and productive community. Yins second case study was selecting four states to study special education for supporting qualified students educational needs. The two case studies followed a pattern-matching procedure that is a way of relating the data to the propositions of the study with the information from similar situations (Yin, 2008). Based on Yins two case study models, the proposed study will be following the similar pattern-matching procedure to select four Chinese solar energy firms as subjects with similar situations. Through employing a qualitative case study design, the study will be analyzing and evaluating business strategies used and CSFs established by the four firms in expending solar energy businesses.
For the last 20 years, Chinese economy has grown faster than all other economies (Tucker, 2006). Although the economys rate of growth has slowed considerably in the face of the global financial crisis, it has been avoided sinking into recession. Gross domestic product (GDP) growth of China is expected to be 8.6 in 2009 and 9 in 2010 (Huang, 2009 Monaghan, 2009). With the thriving economy and rapidly expanding energy consumption, diversifying energy supplies is imperative for China. Thus, China is a global manufacturing powerhouse for solar PVs, with huge and growing investments in the solar energy industry (Martinot Li, 2007). There are four Chinese solar energy firms will be selected for the proposed study, which are L Solar, S Power, T Solar, and Y Energy. L Solar and S Power are the two most prominent international companies that specialize in the solar energy industry (Francis, 2009 Hille,2009 Hogan,2009Khadduri, 2008 Pernick Wilder, 2007). L Solar is the worlds leading manufacturer of monocrystalline and multicrystalline ingots and wafers that are the principal raw material used to produce solar cells. Monocrystalline and multicrystalline ingots and wafers are also called solar ingots and wafers (Diamond Wire Technology, 2008 Hille HoganPernick Wilder). S Power is the worlds leading manufacturer of solar cells and PV modules (Francis Hille HoganMMA Renewable Ventures, 2008 Pernick Wilder). As a solar PV pioneer, T Solar is one of the few PV manufacturers developing a vertically integrated business model from the production of monocrystalline and multicrystalline ingots, wafers, and cells for the assembly of high quality modules in the solar energy industry (Hogan Savitz, 2008 Schulman, 2008). Y Energy is the worlds leading vertically integrated photovoltaic (PV) manufacturer from making multicrystalline ingots and wafers to creating solar cells and PV modules (Hille Hogan Savitz).
The studys subject selection is followed by a logical replication. All subjects are similar in the aspect that they are all Chinese firms that specialize on the solar energy industry. Stable, unobtrusive, and exact measures are ways of collecting data that do not require researcher interaction with the population of interest, and existing texts are considered stable, unobtrusive, and exact (Trochim Donnelly, 2007). The qualitative case study will be using a documental type of instrument to collect data from 435 SEC filing documents of the four firms that specialize in developing solar energy businesses and from relevant articles. These existing documental data are stable, unobtrusive, and exact.
MaterialsInstruments
During the process of research, qualitative investigators can collect data from written documents that are existing documents, including newspapers, magazines, books, annual reports, and others (Creswell, 2008 Trochim Donnelly, 2007). To conduct the study, an instrument is utilized, which is a documental type of instrument. In case studies, one goal is to build a general explanation based on pattern-matching of data sources (Yin, 2008). The instrument will be used to collect data from the 435 SEC filing documents of the four Chinese solar energy business firms and from relevant journal articles. Although collecting data from documents may present some limitations such that some documents may be protected and cannot be found, the current study did not experience this since all data were available in public documents. Also, collecting data from documents has its advantages. According to Creswell and Yin (2008), historical documents allow a researcher access stable, exact, and unobtrusive sources of information that are thoughtful, and a researcher can also review these documents repeatedly.
The studys purpose is to explore business strategies implemented and CSFs established by the four firms in expanding solar energy businesses. The 435 SEC filing documents of the four firms and relevant articles are the sources of evidence in the study. The documents and archival records are the existing facts recorded for the study (Shank, 2006). These SEC filing documents are public and existing facts. These SEC filing documents include IPO documents announcements of strategic plan, implementation, and performance and quarterly and annual financial reports. To collect data from the SEC filing documents of the four firms and from relevant articles will be meaningful and feasible for the study.
The data analysis methods are the content analysis in the form of thematic analysis of text with units of analysis for the exploration of historical document data (Cooper Schindler, 2008). Leedy and Ormrod (2005) stated that content analysis was a technique for making inferences by objectively and systematically identifying specified characteristics of messages through examination of the repetition of words and phrases in text. Existing documents are analyzed with some form of content analysis that is the systematic analysis of text (Krippendorff, 2004 Trochim Donnelly, 2007). In the qualitative study, the content analysis is the form of thematic analysis of text, does not require original data collection, and involves the systematic assessment of existing texts (Trochim Donnelly, p. 153). In the proposed qualitative case study, data collection is from 435 SEC filing documents of the four firms and from relevant articles. Content analysis in the form of thematic analysis of text will be employed for the studys data analysis. Therefore, SEC filing documents of each of the four firms and relevant literature contents will be used.
Case studies involve units of analysis (Yin, 2008). A unit of analysis is the major entity analyzed in the research (Trochim Donnelly, 2007). In the qualitative case study, the primary unit of analysis is each of the four Chinese solar energy firms. Data from SEC filing documents of each of the four firms and relevant journal articles will be collected based on the research problem, purpose of the study, and research questions. Leedy and Ormrod (2005) indicated that the content analysis was used to examine words or phrases within a wide range of texts and was useful to identify themes. By using the thematic analysis and units of analysis, these themes will be emerged as generic and grand strategies used, as well as CSFs established by the four firms to expand their solar energy businesses.
Shank (2006) described the form of thematic analysis was the process of coding and analysis. Boyatzis (1998) indicated a code was a label with the definition and qualification of the theme. Base on the units of analysis with each research question, the studys thematic coding will involve taking the SEC filing documents of each of the four firms and relevant articles into different themes and categories. For example, themes align with the first research question presenting in Table 1. Which one of following types of generic strategy that each solar energy firm has used and which following one is most used by the four firms will be addressing the first research question.
Table 3.1
An Example of Themes Aligning with the First Research Question
ThemeSub-themes (Types of Generic Strategy) Generic strategyCost leadership
Product differentiation
Cost focus
Differentiation focusFrom Essentials of strategic management (4th ed.), by J. D. Hunger, and T. L. Wheelen, 2007. Copyright 2007 by Pearson Prentice Hall. Adapted with permission of the authors.
Themes align with the second research questions, which the theme is grand strategy. Sub-themes are raising funds, concentrated growth, market development, product development, innovation, horizontal integration, vertical integration, concentric diversification, conglomerate diversification, joint ventures, and strategic alliances (Forgang, 2008 Pearce Robinson, 2009). What types of grand strategy that each firm has implemented and what types of grand strategy are most implemented by the four firms will be addressing the second research question. Themes align with the third research question, including theme as CSFs and sub-themes that consist of operating capability, distribution capability, marketing skills, product mix, market presence, and ability to change (Caralli, 2004 Carpenter Sanders, 2007). What success factors that each firm has established and what success factors are most established by the four firms will be addressing the third research question. However, there may be some generic and grand strategies implemented and CSFs established by the four firms being different than those in the literature review.
By addressing each of the three research questions, a coding scheme will be derived from the data presented in the 435 SEC filing of documents of the four firms and relevant articles. The coding scheme will be simply determined by the frequency of documents relating to each of the research questions that aligns with a label as positive, neutral, or negative. The three different judgments can be done by a simple assessment of each of 435 SEC filing documents to each of the three research questions. The common themes will be emerged from data needed to address the research questions and can be generic strategy, grand strategies, and CSFs. According to Shank, as these coding themes will take more determinate shape and form, sub-categories will be emerged to bridge and reach the goal of the study. For the proposed study, the sub-categories can be different generic and grand business strategies and different CSFs in the development of solar energy businesses. By making efforts to address each of the research questions, conclusions about the theory of effective strategies and CSFs of expanding solar energy businesses will be drawn based on the coding themes and categories.
If the data is described exactly as received, the quality of the research is based on credibility, transferability, dependability, and confirmability (Trochim Donnelly, 2007). As data collection will be based on the SEC filing documents of the four firms and from relevant articles, the data in the study will be abstracted as the data exactly presented in the SEC filing documents of the four firms and in the relevant articles. Thus, the quality of the study will be credible, transferable, dependable, and confirmable. Conclusion validity is the degree to which conclusions reached about relationships in the data are reasonable, and the conclusion validity pertains to a cause-effect relationship (Trochim Donnelly). Thus, the conclusion validity is not important in the proposed study because the studys intent will be describing findings exactly as data presented in the SEC filing documents of the four firms and in the relevant articles, not examining any causal relationship.
Data Collection, Processing, and Analysis
The qualitative case study is to employ a documental instrument for data collection from 435 SEC filing documents of four Chinese solar energy firms and from relevant articles. These SEC documents consist of IPO documents, announcements of strategic plan and implementation, and quarterly and annual financial reports with business summaries. Relevant articles are relative to the four firms business performance. By aligning with the research questions, the intent of the documental data collection is to gather data regarding each of the four firms generic strategies and various grand strategies used and various CSFs established in expanding solar energy businesses.
In case studies, one goal is to build a general explanation based on pattern-matching of data sources (Yin, 2008), which Sharma and Chahal (2004) described as analyzing the raw data, coding those data, and clustering them into similar groups in order to compare each of the clusters for commonalities or divergences in pursuit of exploring a systematic repetition of themes. As the framework of data collection has been completed based on Yins (2003) two case study models, the data should be converted into a format in order to address the research questions for the research problem solving. Interpretation, classification, and recording are important processes for the proposed study to summarize the data (Zikmund, 2009).
The thematic analysis method identified will be used to code and analyze the documental data for the three research questions through an iterative process. Each SEC filing document or relevant article will be read through. After reading each document, the meaningful data will be immediately noted and analyzed. Data were compiled to identify relevant themes. Bracketing was performed without any preconceived notions about the research results. The various data from the SEC filing documents and relevant articles were clustered into themes relative to the research questions. To allow for the best qualitative assessment of data obtained from the 435 SEC filing documents of the four firms and relevant articles through use of the documental instrument, the data collected relating to each unit and each research question will be documented and will be placed into a specific word document and an excel spreadsheet through use of the approach to keeping a journal during the study.
According to Yin (2008), the analytic strategy of the data collection and analysis is to rely on propositions of the study and research questions for the research problem solving. The propositions are tracking the history of solar energy development, exploring the strategies and CSFs to enhance market presence and business growth in the development of solar energy businesses. Data collection will be aligning with the proposed research problem, purpose, and questions by analyzing and evaluating SEC filing documents of the four firms and relevant journal articles. An exploratory case study methodology is selected over other qualitative designs because the focus of the research is to categorize and interpret themes (Leedy Ormrod, 2005).
Emerging themes for the proposed study should be the exploration of generic and grand strategies and CSFs in developing solar energy businesses based on addressing the three research question with the method of units of analysis. As a unit is each of the four solar energy firms, to conduct the analysis of each unit of the four firms aligning with the research problem, purpose, and central question is important to narrow the focus on addressing each of the three research questions. By using frequency of SEC filing documents of the four firms and relevant literature with the content analysis, the most frequently reoccurring strategies and success factors of developing solar energy businesses will be the propositions generalized into the theory of effective strategies and CSFs in the expansion of solar energy businesses. Figure 3 presents the data collection, processing, and analysis.
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Figure 3. Data collection, processing, and analysis.
Through conducting the qualitative case study, the roles are to provide background data and to identify the research problem, purpose, nature, significance, and research questions through which the audience can understand the topic, the study setting, and the sources of data collection. The role for data collection and analysis is selecting appropriate research methods and instruments. With a strategy of case study, the qualitative research is interpretative research (Creswell, 2008). The interpretative roles are to identify the research values and interests about the research topic and process and to present how to report study results and how the audience gains understanding and knowledge of developing solar energy businesses from the proposed qualitative case study. However, the interpretative research may present a range of strategic, ethical, and personal issues into the research process (Creswell). Finally, the ethical role is to mitigate any ethical issues and concerns. Thus, for the proposed study, collecting data from SEC filing documents of the four firms and from relevant articles are feasible because these data are exact and unobtrusive.
Methodological Assumptions, Limitations, and Delimitations
The qualitative case study will be performed based on three assumptions. The first assumption is the qualitative case study design with the four Chinese firms selected is appropriate for exploring solar energy business development and expansion. To collect data from 435 SEC filing documents of the four firms and relevant journal articles is appropriate and feasible for the proposed study. The third assumption is that the major data collected from the SEC filing documents of the four firms are the facts of reality in developing solar energy businesses. As the four firms have successfully specialized in solar energy businesses for five years or longer, the four firms are truly representatives of developing solar energy businesses.
The qualitative case study will involve a process to focus on the analysis and evaluation of the SEC filing documents of the four Chinese solar energy firms and relevant journal articles. A limitation of the qualitative study would be the interpretation of the documental data. To mitigate the limitation, the research methods and procedures chosen will be documented and performed consistently. Thus, the interpretation would be reliable. The single case study design has limitations and strengths (Yin, 2008). Generalizing the findings from 435 SEC filing documents of the four firms to the larger population of Chinas solar energy businesses is a limitation of this study. To provide a basis for forming some general principles to succeed in developing solar energy businesses base on analyzing and evaluating the SEC filing documents of the four firms and relevant articles, the generalization would be limited. Thus, the characteristics of the four firms might not be fully representative of Chinas solar energy industry as a whole.
The proposed study is exploring strategies used and CSFs established by the four Chinese solar energy firms through the analysis and evaluation of the SEC filing documents of the four firms and relevant articles. The proposed study may comprise additional awareness and education concerning the business strategies and CSFs for firms in developing solar energy businesses to compete within the energy production industry. However, the proposed study will not go beyond the four Chinese solar energy firms since these are the top solar energy firms in China and there is a vast amount of information on these firms. Data will be collected from 435 SEC filing documents and relevant journal articles.
Ethical Assurances
Ethical issues in research consist of four categories protection from harm, informed consent, right to privacy, and honesty with professional colleagues (Leedy Ormrod, 2005). The proposed study is based on the considerations of protection from harm, informed consent, right to privacy, and honesty. As the studys data collection will be the focus on analyzing and evaluating the 435 SEC filing documents of the four Chinese solar energy firms and relevant articles. The ethics problem is limited. In order to mitigate any ethical issues and concerns, significant efforts will be made to ensure that only published data from the 435 SEC filing documents of the four firms and from relevant articles are collected because these data are exact and unobtrusive. In addition, to avoid any ethical issue, the four firms identified as the study subjects present pseudonyms.
Summary
This chapter consists of identifications and discussions about the proposed study method designs, research subjects, materialinstrument, data collection, processing, and analysis. Based on Yins (2003) two case study models, the qualitative case study is to follow the similar pattern-matching procedure to select the four Chinese solar energy firms as subjects. The pattern-matching of data sources allows building a general explanation of the study (Sharma Chahal, 2004). The study is employing a qualitative case study design with a documental instrument for data collection and the thematic analysis method for data analysis. The data analysis methods are the content analysis and units of analysis for the exploration of historical data from the SEC filing documents of each of the four firms and relevant journal articles. Finally, in order to mitigate any ethical issues, the methodological assumptions, limitations, and delimitations and ethical assurance have been discussed and clarified as well.
