Professional Documents
Culture Documents
Suzlon Case (GE)
Suzlon Case (GE)
Suzlon Case (GE)
Case
Suzlon Energy: A Quest for
Opportunities
By Navneet Bhatnagar and Kutti Krishnan
“Ladies and gentlemen, I recognize that the past year has been among the
toughest we have faced, but our industry is in a better position than many
others. Let us focus on the future, which I think is bright. We must be
selective in targeting our efforts toward the most attractive market
opportunities, and make the most of those,” Rajesh Pradhan told his team
members. It was December 2009, and Rajesh was Senior General Manager of
the International Business Unit at Suzlon Energy Limited, the fifth largest wind
turbine maker in the world. He called his team together today to identify
market opportunities across the globe and decide how best to capitalize on
those opportunities. In the past year, Suzlon had gone through tough times
due to the global economic downturn, and wind energy projects worldwide
were being put on hold as businesses and funding for wind energy
development both slowed.
Rajesh enjoyed a challenge and had a penchant for finding silver linings
around even the darkest rain clouds. Ever the optimist, he continually told his
team, “Opportunities don’t come knocking on our doors. We have to go out
there and find them. That’s what we have to do. The stars are aligned to help
us, so go for it!” He was convinced that Suzlon could register good market
growth by focusing on the right opportunities and pursuing them with vigor,
and most of Rajesh’s team did not need any convincing – they were already
infected by his optimism. After all, global warming was a major concern for all
nations, and the world seemed energized by the prospect of clean energy.
Rajesh believed that “Suzlon’s position as a large, established, and well-
integrated global wind energy player has opportunities galore on the horizon.”
Copyright © 2012 by Indian School of Business. Distributed by DecisionPro with permission of the
Indian School of Business.
and rising prices of electricity. The situation increasingly impacted his
operations and eroded the bottom-line. Tulsi began seeking out alternative
sources of energy that were reliable and cost efficient. After some research, he
decided to install two wind turbine generators that would allow captive power
consumption.
While completing the project, Tulsi gained important insights into the
advantages and challenges of wind power generation. From the customer
perspective, wind energy promised better control over power availability and
cost, which would significantly improve any business operating in areas like
India with underdeveloped electrical grids, where businesses were starved for
power, and rising prices depleted their profits. In addition, variable costs for
operating and maintaining wind projects were relatively small. On the other
hand, Tulsi saw that wind power projects required huge capital investments
which kept such opportunities out of reach for many companies, even taking
into account India’s government subsidies for renewable energy projects.
He realized that to succeed in the wind industry at large, he would have to
develop an integrated value proposition for potential clients. As such, Tulsi
founded Suzlon Energy Limited in Pune, India in April 1995. In October of that
year, Suzlon entered into a technical collaboration with Sudwind Energy
GmbH, Germany, one of the dominant players in the German wind industry.
Suzlon commissioned its first wind turbine (0.27 MW) for a client in Gujarat,
India in March 1996. Sudwind dissolved in 1997 due to financial problems, and
Suzlon took the opportunity to purchase its operations. It engaged Sudwind’s
entire team and began manufacturing its first wind turbines. This was quickly
followed by the acquisition of the Dutch rotor-blade manufacturer AE Rotor
Holding BV (see Exhibit 1).
In the early 1990s, there was no end-to-end service provider for the wind
energy business that could offer complete project development guidance,
commissioning, operational and maintenance services for its wind farm clients.
Prior to Suzlon’s entry into the industry, India’s wind energy production
consisted of a small number of wind farms owned by industrial houses creating
captive power for their own operations. The small commercial wind market
there was led by an Indo-European joint venture, NEPC Micon, with European
energy companies Enercon and Vestas operating in the capacity of turbine
distribution.
Suzlon’s early operations were largely limited to the nascent Indian market
and the gradual growth associated with a low-infrastructure market. During
these initial years, the company identified service as a key to its ability to
generate business growth. Helping clients identify and negotiate with potential
funding sources played a major role in developing the market and augmenting
its Suzlon’s customer base. Banks responded to Suzlon’s technical analysis of
a project’s long-term financial viability. The company also routinely liaised with
local governments on behalf of clients to secure the permits, land, tax credits,
and infrastructure improvements necessary to execute client and future wind
energy projects.
At the other end of the spectrum, Suzlon’s major clients included utility
companies in developed markets. These clients generated wind power and fed
it into regional or national power grids and therefore needed integrated
solutions that could facilitate stable and hassle-free operations. Suzlon
envisioned an integrated business model that offered comprehensive support
and industry-related consultancy services to all levels of clientele, thereby
establishing itself as an end-to-end wind energy solutions provider.
This vision paid off, yielding positive results for the company. Looking back at
the strategy, Tanti wrote in his letter to shareholders in the company’s annual
report for the year 2007-2008, “Suzlon had recognized the need for vertical
Acquisition-Led Growth
Components used in the wind energy industry were unique; only a few
manufacturers in the world could produce the critical components, and of
those, none could produce a majority of those components. Competitors vied
for their share of supplies from the same set of suppliers. This created a
constant supply bottleneck for all wind turbine manufacturers. Suzlon
management had identified the importance of developing an integrated supply
chain to better control its business, and providing end-to-end, customized
solution to meet customer needs. Management believed that achieving vertical
integration for its supply chain was the most important factor in securing
Suzlon’s long-term success. Since Europe led technology in the industry,
Suzlon pursued further control through acquisitions of European wind
technology developers. Having already acquired Sudwind and AE Rotor, Suzlon
was now relatively experienced in overseas acquisitions. In March 2006,
Suzlon acquired Hansen Transmission International NV, Belgium, a leading
manufacturer of gearboxes and drive trains, both of which were key
components of wind turbine generators.
Suzlon had also acquired shares in REpower Systems AG of Germany in May
2007, raising its interests to 66% of the company a year later with an eventual
target of full ownership. REpower was a technology leader in wind energy with
a strong research and development division. In an interview to the Business
World magazine in 2007 (February 26, 2007 issue), Tanti said, “REpower's
management is sound, and the company has strong technology and R&D
teams. Our combined expertise within components at Suzlon and turbines at
REpower will result in more reliable and cost-competitive products for our
clients.”
Through these acquisitions, Suzlon amassed in-house manufacturing capacity
for all critical components including gearboxes, rotor blades, generators and
towers, while improving quality control and supply availability thanks to new
economies of scale. The acquisitions also helped Suzlon to widen its product
portfolio to include large-capacity and offshore turbines, expanded
manufacturing capabilities, and enhanced company presence across more
global markets, especially in Europe and China. By 2005, Suzlon had
transformed itself from a mid-sized Indian wind energy provider to a
prominent global player in the industry.
1
Interview with R Sridharan of the business news television channel, ET Now on 18 th December2009; Sourced
from the Economic Times website - http://articles.economictimes.indiatimes.com/2009-12-
18/news/27654927_1_suzlon-promoters-stake-sale-hansen-transmissions.
Note: Navneet Bhatnagar and Kutti Krishnan prepared this case as basis for
class discussion under the guidance of Professors Arvind Rangaswamy and
Gary L. Lilien. This case is based on publicly available information. The case
does not intend to serve as endorsement, source of primary data, or
illustration of effective or ineffective handling of a managerial situation, but to
illustrate a business situation based on real events. It does not purport to
represent the actual situation facing Suzlon or the decisions made by the
company.
Exhibit 10: Top 3 Wind Turbine Suppliers in Leading Markets, 2008 and
Their Market Shares
Source: Compiled by case authors from World Market Outlook 2008, BTM Consult ApS and reports of wind energy
associations of respective countries.
Notes:
1. Enercon is a privately held company and does not disclose financial data.
2. Figures for Siemens and GE are consolidated (all business units/divisions) for all wind power business.
3. All conversions are made at the exchange rates of 1 Euro = $1.44 USD.
Exhibit 15: Suzlon’s Order Book Position for Wind Turbine Generator by
Geographic Region
Source: Annual Report (2007-08) of Suzlon Energy Limited.
http://www.suzlon.com/images/investor_annual_result/1_AnnualReport0708.pdf
Exhibit 16: Near Term Wind Index – A Measure for Country Attractiveness
Source: Ernst & Young, renewable energy country attractiveness indices, August 2009
Note: Index value accrues via factors such as investment commitment, market growth, wind capacity, and others. The
higher the index value, more attractive is the market.
GERMANY
PORTUGAL
CANADA
FRANCE
Market Attractiveness Factors
CHINA
SPAIN
INDIA
ITALY
USA
UK
Wind Power Harnessing Potential
9 9 6 7 7 6 8 6 5 8
(Wind resources mapping & energy output estimation)
Commitment To Wind & Other Renewable Energy Sources
8 9 10 7 9 5 6 6 6 7
(Political vision and long term goal)
Regulatory Frameworks & Incentive Mechanisms
8 9 9 5 6 7 7 8 6 7
(Progressiveness of policies, tax credits, preferential tariffs, etc.)
Infrastructure & Grid Support
(Appropriateness of infrastructure and conducive grid conditions 7 7 9 5 7 7 9 9 6 8
for setting up commercial scale wind farms)
Financing Facilities
10 4 7 8 7 7 8 7 6 7
(Presence of and support from high networth investors)
Exhibit 19: Country Specific Developments & Issues Influencing Wind Power
Generation
Source: Compiled by case writers from Global Wind Energy Outlook 2008 and Global Wind Report 2008, Global
Wind Energy Council (GWEC)
i
Johnson, Keith. “Wind Breakers: Suzlon shudders after wind turbine accident,” Wall Street
Journal, October 24, 2008.