Issues in Global Business and Strategic Concepts; Analysis of Siemens Strategy

 

 

 

1.0  Introduction

The global energy market has over the past decades been characterized by an increase in pressure arising from different factors amongst them environmental degradation and climate change (Apergis & Payne 2012). These aspects have led to increased investment in the development of renewable energy (Omri, Daly & Nguyen 2015).  Currently, renewable energy has become an economic priority for most countries across the world. This has contributed to the rapid growth of the renewable energy industry (Galbraith & Wald 2008). Available evidence shows that despite global economic changes such as the 2008 financial crisis, the global renewable energy market was characterized by an increase in the level of investment (Sadorsky 2009).  According to Omri, Daly, and Nguyen (2015), a report by the Renewable Global Status Report shows that ‘the global investment in renewable energy in 2008 increased from $104 billion to $120 billion’ (p. 2913).  In 2015, global investment in renewable power increased to $ 265.8 billion (Frankfurt School 2016).  A study conducted by the International Energy Agency (2015) projects that renewable energy will constitute the largest source of energy over the next five years.  The global growth in the renewable energy market segment will be spurred by a number of factors that include sustained technological innovation, the emergence of new markets, and improved financing conditions (International Energy Agency 2015). On the basis of these aspects, it is evident that renewable energy will dominate the global energy market.

Wind energy is one of the most viable future sources of renewable energy. Its viability is underlined by the fact that it is characterized by a high potential.  As a result of the high market potential, the global wind power industry is experiencing an increase in the intensity of competition (Welgelt & Shittu 2016). Amongst the major industry players include Siemens, General Electric, Enercon, Vestas, Goldwind, United Power, Gamesa, and XEMC. Siemens has managed to attain a competitive market potential in the global wind power market segment by developing and supplying reliable environmentally friendly and cost-efficient renewable energy solutions (Siemens 2016). In spite of the high market potential, the increase in intensity of competition poses a threat to Siemens in its quest to achieve sustainable competitiveness. Therefore, it is imperative for the Siemens management team should ensure that it integrates an effective strategy that will foster the firm’s long-term competitiveness.

1.1 Aim

This report entails a critical analysis of Siemens's wind-powered renewable energy strategy. The analysis is intended to provide Siemens management team advice on the firm’s future strategic direction.

2.0 Description of Siemens’ wind power energy strategy

   To optimize its competitiveness, Siemens has formulated a comprehensive strategy that is intended to enhance the firm’s capacity to achieve global leadership in the offshore wind market (Siemens 2012). The firm further intends to achieve global leadership by expanding its international production network and undertaking extensive investment in innovation (Siemens 2017). Amongst the notable innovative technologies that Siemens focuses on include floating and gearless wind turbines (Siemens 2017).

 In the quest to achieve market leadership, Siemens is increasingly targeting emerging economies that are entrenching wind energy as one of the renewable sources of energy (Luo 2002). Siemens is also committed to entrenching effective internal governance processes and has also adopted an integrated management model.  The firm is of the view that taking into account these elements will enhance effectiveness in targeting customers. In addition to these aspects, Siemens focuses on three main dimensions that include driving performance, strengthening its core market position, and scaling up its operations in the wind power market.  On the basis of these strategic dimensions, Siemens is of the view that it will succeed in leveraging the opportunities inherent in the global energy market. 

3.0 Analysis  

 The strategy and strategic decisions made by a firm’s management team affect a firm’s long-term performance and survival (Marek 2014). According to  Hansen, Mowen, and Guan (2009), strategic decision-making entails choosing among alternative strategies with the goal of selecting a strategy or strategies that provides a company with reasonable assurance of long-term growth and survival’ (p. 377). In light of the increase in the intensity of competition that is currently being experienced in different business sectors and the high potential of economic growth especially in emerging economies, businesses cannot underestimate the purpose of developing a sustainable competitive edge (Pettigrew, Thomas & Whittington 2002). Unlike firms that operate within the domestic market, businesses that have ventured into the international market, such as Siemens, face complex challenges arising from the international business environment (Fung 2014).

 In spite of the challenges associated with the international business environment, multinational firms can achieve competitiveness in the international market by formulating a comprehensive international business strategy. Firms intending to enter the international market can formulate an international business strategy by matching a firm’s internal strengths, relative to its competitors, with the challenges and opportunities inherent in the international market (Verbeke 2013; Ball et al. 2016). 

Siemens's business strategy reveals a number of issues associated with the firm’s strategy. Amongst the notable issues relate to the type of strategy that the firm has adopted, the firm’s commitment to expand into the international market, and the firm’s strategy to achieve a competitive edge in the international market through investment in research and development (Czinkota et al. 2011; Peng & Delios 2006).  Siemens has entrenched the focus strategy as its core business-level strategy.  Firms operating in the international market may employ two main types of international strategies that include; corporate-level international strategy and business-level international strategy (Hitt, Ireland & Hoskisson 2007).  Business-level strategy entails an organization’s overall competitive theme with regard to how it intends to position itself in the industry (Hill, Schilling & Gareth 2016).  The success with which multinational firms employ international business level strategy is influenced by the competitive advantage that the firm has developed in the domestic market. This perspective is supported by Bidgoli (2010) who asserts a firm’s resources and capabilities play an essential role in pursuing the strategy in the international market.

Effective implementation of an international-level business strategy can positively influence Siemens's quest to achieve market leadership in the global wind power energy market segment. According to Ireland, Hoskisson, and Hitt (2016), focus strategy is very effective in enhancing a firm’s success. This arises from the fact that it increases the likelihood of a firm succeeding in targeting its customers which is a vital move in ensuring that a firm develops products and services that the customer needs. Pearl (2011) asserts that the effectiveness of a focus strategy in meeting the market demand is that it is based on a narrow approach.  Thus, a firm is able to develop a comprehensive understanding of the customers’ needs. Therefore, Siemens will gain extensive knowledge of the customers’ need for wind power energy. 

3.1 Critical evaluation of the firm’s strategy

Siemens can achieve sustainable competitiveness in the global wind energy market segment by leveraging on the focus strategy. The firm can achieve this outcome by leveraging on two main approaches of focus strategy that include entrenching focused differentiation and focused cost leadership strategy (Hill 2014).  Daniels, Radebaugh, and Sullivan  (2014) assert that a focused differentiation strategy entails ‘an action plan that a firm adopts to develop products that a narrow group of customers perceived as being unique in ways that are important to them’ (p. 111).   However, in order to effectively serve the target market, Siemens's management team should ensure that it develops an adequate understanding of the target market.

The most important aspect of developing a target market entails evaluating the size of the market. Buckley and Ghauri (2015) assert that the focus strategy is very effective if the size of the market is relatively large so as to increase the chances of making a profit. Moreover, Pearl (2011) asserts that the target market must be characterized by fast growth but small enough to remain under the radar screen of large rivals’ (p. 134).  To gain an edge in a market characterized by an increase in the intensity of competition, it is imperative for a firm to ensure that it offers unparalleled products and superior service. This aspect is very essential in fostering the development of customer goodwill, hence reducing the chances of customers warding off to competing firms (Peng, Wang & Jiang 2008).

On the basis of its current focus strategy, Siemens might succeed in maximizing profit due to the large size of the wind power industry.  This assertion is supported by the high rate at which different countries are adopting wind energy as an alternative source of renewable energy.   Thus, there is a high chance that Siemens will achieve the intended growth.

In addition to understanding the target market, firms intending to apply the focus strategy must be ready to deal with growth in intensity of competition within its market segment (Pearl 2011; Hill 2014).).  Thus, the firm must develop the requisite skills, knowledge, core capabilities, and resources. The importance of developing skills, knowledge, core capabilities, and resources in actualizing the focus strategy arises from the fact that target markets are characterized by unique market demands and needs (Rugman & Hodgetts 2012). Subsequently, a firm must ensure that it adequately addresses the diverse customer needs.  Currently, Siemens has developed sufficient competitiveness with regard to designing and developing wind power energy solutions.

One of the ways through which the firm can entrench a focused differentiation strategy entails investing in extensive new and continuous product innovation (Hill 2014). Therefore, it is imperative for Siemens’s management team to focus on investing in research and development on wind energy solutions.  Currently, the firm has invested in research and development in the quest to improve the efficiency of its turbine-to-grid connection. This aspect will play a fundamental role in improving the perceived value of its wind energy turbines in generating electricity amongst the target customers. Subsequently, integrating the differentiation strategy will enable the firm to build strong brand loyalty. This outcome will arise from the fact that the firm will be able to design wind energy solutions that are aligned with addressing the customers’ needs. Employing the differentiation strategy will further strengthen the firm’s competitiveness by improving the market position of its products.

In addition to the focus differentiation strategy, Siemens's future competitiveness is also likely to be strengthened by the integration of a focused cost leadership strategy. One of the factors that have enabled Siemens to entrench its focus cost leadership strategy entails its investment in innovative research and development on offshore wind energy technologies. For example, the firm projects that it will offer customers offshore wind power technologies that will enable them to produce wind energy at a levelized cost that is below 10 euro cents per kilowatt hour (Siemens 2015). Through this approach, Siemens is likely to enhance its future competitiveness hence increasing the likelihood of attaining global leadership.

Hitt (2014) argues that combining strategies is one of the most viable ways through which a firm can achieve sustainable competitive advantage. Pearl (2011) asserts that firms intending to survive in the long term should relentlessly focus on ‘becoming a lower and lower-cost producer of higher and higher-caliber products’ (p. 156).  The overall effect is that the firm will succeed in becoming the most effective low-cost producer. On the basis of this strategy, the firm will succeed in combining the cost and differentiation strategy. The ultimate effect is that the firm will succeed in offering customers high-quality products hence providing them value for their money.  Therefore, Siemens should strive to become a lower and low-cost producer of high-quality wind power energy solutions.

3.1.1 Offensive strategies

To succeed in combining the offensive strategy, Siemens should ensure that it develops a comprehensive understanding of its competitor’s products (McDonald, Smith & Ward 2007). Thus, the firm should invest in extensive due diligence.  The purpose of gaining adequate knowledge of the competitors is to increase its capacity to employ offensive strategies. An example of an offensive strategy that the firm should consider entails exceeding its competitor’s strengths and capitalizing on their weaknesses (Hill 2014).  In employing an offensive strategy, Siemens should invest in developing a more competitive technology relative to its rivals but at a lower cost (Porter 1980). This approach will enable the firm to entrench key attributes in its wind power energy solutions at a lower cost. The ultimate effect is that the firm will increase the cost of customers switching to a competing product. Nevertheless, the firm’s success in achieving this goal will depend on its commitment to undertaking superior research and development.

Another approach that Siemens can consider in actualizing the offensive strategy entails undertaking a pre-emptive strike, which occurs when a move moves first to secure a potentially advantageous position in the market before the competing firms can venture into such a market. Siemens can employ the pre-emptive strike by expanding its innovative and low-cost production capacity. This move will enable the firm to succeed in capturing the market opportunity inherent in the fast-growing global wind power energy market.

3.1.2 Defensive strategies

In addition to integrating an offensive approach in implementing cost leadership and differentiation strategies,  it is also imperative for Siemens to consider employing a defensive approach.  According to Roberts (2005), defensive strategies are aimed at minimizing the risk of competitive attacks from rivals. There are different ways through which Siemens can succeed in entrenching defensive strategies. First, the firm should consider broadening its product lines in order to reduce the gaps that competitors might pursue hence affecting the firm’s competitive strength. Alternatively, the firm may consider aligning its low-pricing model close to that of its rivals.  The firm should also consider protecting its proprietary know-how as one of its defensive strategies.  According to Hutton and Mulhern (2002), announcing a firm’s future plans, for example, plans to establish new production facilities in order to address the growing demand for its products is essential in strengthening demand future demand for its products. Creating such awareness of the firm’s future projects will play a critical role in creating trust in the firm’s capacity to address an increase in customers’ demand for the firm’s products.

 

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