Balancing The Power Equation

Indian School of Business
ISB049
January 27, 2015
Snehal Awate | Ram Mudambi | Arohini Narain
Balancing the Power Equation: Suzlon Energy Limited

Tulsi Tanti, the founder, Director and Chairman of the Indian wind turbine manufacturer, Suzlon,
arrived at the company’s headquarters in January 2014 contemplating the integration of one of
Suzlon’s subsidiaries, REpower. The unforeseen challenges brought on by the REpower acquisition
had been among the toughest he had ever faced.
After entering international markets in the early 2000s, Suzlon had rapidly emerged as the world’s
fifth largest wind turbine manufacturer, leaving behind several of its European and American
1
competitors. Headquartered in Pune, in the western Indian state of Maharashtra, the company
operated in six continents and had amassed a diverse workforce of over 10,000 people by 2013.
Under Tanti’s leadership, the company had developed capabilities to perform higher value-added
activities despite being a late industry entrant and one, moreover, from an emerging economy. Its
services ranged from design and development to the manufacture, operation, marketing and
maintenance of wind turbines. Moreover, Tanti had attained a total net worth of US$690 million,
2
making him one of the 100 richest Indians. Tanti’s demeanor was serious and modest, but his
strategy of stoking business growth through global takeovers was aggressive. If he could not build
something, he acquired it. Most of the deals he had struck had successfully served their purpose, but
for one.
After a takeover battle against the French group, AREVA S.A., Suzlon acquired the German wind
turbine maker REpower in 2007 for €1.34 billion. It was one of the largest overseas acquisitions
made by an Indian firm. Keen on accessing REpower’s offshore wind turbine technology, Tanti was
quick to outbid AREVA during the takeover battle. However, even after Suzlon became the majority
shareholder, accessing REpower’s technology remained a distant dream. With German corporate
law and financing agreements on its side, REpower refused to share its technology with the majority
shareholder until Suzlon acquired 100% ownership. Being a technologically superior and more
established subsidiary, REpower had greater negotiating power than Suzlon. Suzlon’s predicament
was compounded by the global economic downturn and its own mounting debt, high operating costs
and low profit margins.
Suzlon Website, http://www.suzlon.com/about_suzlon/l3.aspx?l1=1&l2=1&l3=11, accessed on January 17, 2014.

1
2
Ibid.
Professor Snehal Awate, Professor Ram Mudambi and Arohini Narain prepared this case solely as a basis for class discussion.
This case was developed from published sources. This case is not intended to serve as an endorsement, a source of primary
data, or an illustration of effective or ineffective management. The authors would like to thank the Department of Strategic
Management, Fox School of Business, Temple University for assistance in writing the case. This case was developed under the
aegis of the Centre for Teaching, Learning, and Case Development, ISB.
Copyright @ 2015 Indian School of Business. The publication may not be digitised, photocopied, or otherwise reproduced,
posted or transmitted, without the permission of the Indian School of Business.
This document is authorized for use only in Dr. Tarun Dhingra's MBA(IB)- 3rd Sem at University of Petroleum & Energy Studies from Aug 2020 to Feb 2021.
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Ever since the acquisition of the initial stake in REpower in 2007, Tanti had been looking for ways to
integrate REPower with Suzlon. Now, nearly seven years later, he wondered whether his “power
struggle” with this subsidiary might finally be over.
THE GLOBAL WIND POWER INDUSTRY
Early experiments using wind energy to generate electricity began in the late eighteenth century
in Europe and the United States. During the two world wars, the restrictions on fossil fuel imports
triggered wind turbine development; however, these developments were largely experimental and
occurred on a small scale. It was ultimately the oil crisis of the 1970s and the subsequent rise in
demand for renewable energy sources, such as solar and wind energy, that provided the necessary
impetus for the establishment and growth of the modern wind power industry. This was further
boosted by a favorable U.S. policy environment for wind energy in the early 1980s. During this
period, the industry experienced a number of product innovations, primarily from two competing
technological trajectories — one in northern California in the U.S., and another in Jutland, Denmark.
In California, the United States Department of Energy and National Aeronautics and Space
Administration (NASA), in response to the oil crisis, engaged a number of engineers to cooperate
with companies in the aircraft industry to develop sophisticated, high-technology, large-scale and
aerodynamically-optimized turbines based on aeronautical engineering principles. In Denmark,
however, diverse wind power enthusiasts such as farmers, carpenters and engineers collaborated to
develop robust, small-scale, three-bladed turbines with reliability and ruggedness as their key
criteria. While Danish turbines were initially small in size, a number of incremental innovations led
manufacturers to scale them up to meet broader commercial demands. In the 1980s, a favorable
policy environment in the U.S. generated high demand for wind turbines and fierce competition
among turbine manufacturers. The Danish low technology-high reliability wind turbine proved
commercially superior to its American high technology-low reliability counterpart. As a result, the
Danish turbine emerged in the late 1980s as the dominant industry standard with Danish firms
controlling the majority of the world market share. The industry experienced a period of
consolidation, and leading manufacturers such as Vestas, Bonus, NEG and Micon from Denmark
and Enercon from Germany began to grow. As noted by a Danish industry expert:
Although they [the wind turbine manufacturers] had got a system that worked in terms of
technology, many problems remained. A major problem was pushing the utility
companies to accept this alternative energy. In Europe, we started to have a system of
subsidizing this industry. That really took it to the next level. We started seeing a lot of
restructuring in the industry in 1990s. The companies were becoming more and more
3
professional, but there were still no big players in the industry.
In order to make turbines more cost effective, Danish manufacturers incrementally increased
turbine size. From 55 kilowatts (kW) in 1982, turbines steadily grew to 450 kW by the early 1990s.
Around this time, the growth of the wind power market in the U.S. had leveled off, and by the mid-
4
1990s, Europe had become the largest market, mainly because of the feed-in tariffs provided by
several European countries. Throughout the 1990s, turbine size continued to grow gradually, and by
the end of that decade, turbines in the range of 600 kW to 1 megawatt (MW) became common (see
Exhibit 1, panel A).
In 2007, the industry had installed over 20,000 MW of wind turbines by investing around
US$37billion, bringing global capacity to about 94,000 MW. This generated residential electricity for
5
150 million people. In 2013, global wind power installations grew by 35,301 with an investment of
5 6
US$80.3 billion, taking total capacity to 318,117 MW. Wind energy accounted for over 2.5% of the
3
From an interview conducted by the authors.
4
Feed-in tariff is a payment made to renewable energy producers at a fixed price per KWh (Kilo Watt Hour) of
generated energy (Musgrove, P. “The Evolution of the Modern Wind Turbine, 1973 to 1990.” In Wind Power, 1st
edition, Cambridge: Cambridge University Press, 2010, 87-124.)
5
Vietor, R. and J. Seminerio. “The Suzlon Edge,” Case: 9-708-051. Boston: Harvard Business Publishing, 2008, 1-26.
6
Global Wind Energy Council: Global Wind Statistics: 2013, April 9, 2014, http://www.gwec.net/wp-
content/uploads/2014/03/GWEC-Global-Wind-Report_9-April-2014.pdf, accessed on April 10, 2014.
2 | Balancing the Power Equation: Suzlon Energy Limited
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total electricity usage in the world. As an alternative energy source, it had grown significantly at
7 8
above 25% per annum. At the end of 2012, there were 225,000 turbines operating in 79 countries.
Several countries used wind as an alternative energy source, with Denmark topping the list as it
9
relied on wind turbine energy to meet over a quarter of its total energy needs. The leading
manufacturers i n 2 0 1 2 were Vestas (Denmark), Goldwind (China), Enercon (Germany), Siemens
(Germany) and Suzlon (India).
Although onshore wind energy posed direct competition to conventional energy sources the world
over, the emergence of offshore wind turbines was an important development in the wind energy
industry . The world’s first offshore wind farm, Vindeby (5MW), was constructed in Denmark in 1992.
By 2012, 4620 MW of offshore wind power had been installed globally, representing approximately
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two percent of the world’s total installed wind power capacity. The growing relevance of offshore
wind energy was apparent in the fact that governments and companies in several countries,
including India, had displayed an interest in developing offshore wind capacity. It was projected,
perhaps ambitiously, that a total offshore wind capacity of 80 gigawatt (GW) would be installed
globally by 2020. Offshore wind found an increasing number of takers because it offered higher wind
speeds, less turbulence and fewer environmental constraints than onshore wind.
THE BEGINNINGS
In the late 1980s, the Indian government began promoting entrepreneurship in the sphere of wind
energy. Wind power manufacturers were offered many financial incentives such as 100%
accelerated depreciation on wind equipment, excise and custom duty relief, a tax holiday for five
years and soft loans. The government implemented policies to facilitate wheeling (power
transmission), banking and wind power purchase. Under wheeling, the existing transmission grid of
the state electricity boards was made available to wind entrepreneurs to transmit (or wheel)
electricity to consumers at a uniform wheeling charge. Under banking, wind power producers could
bank the generated electricity as credit with the electricity boards and in return get utility tax relief on
captive electricity usage.
Around that time, Tanti, with an undergraduate degree in mechanical engineering and commerce,
was working in a textile company run by his family in the coastal city of Surat in the western Indian
state of Gujarat. Though the company was a fairly successful polyester yarn manufacturer, it had
begun to experience financial difficulties in the early 1990s due to rising electricity costs. To deal with
the energy crisis, Tanti invested in two wind turbines made by the German manufacturer Südwind. He
was pleasantly surprised to see his electricity costs decrease in an environmentally friendly and
reliable way. Although wind power turned out to be a viable alternative for Tanti’s textile business,
installing the wind turbines themselves was no easy matter. This was primarily because turbine
manufacturers would often only sell the turbines, leaving customers to figure out how to install and
operate them. Tanti spotted a business opportunity and founded Suzlon Energy Limited in 1995 with
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an initial investment of US$600,000.
Based on his experience with Südwind turbines, Tanti signed a contract with the German company
to sell their 270 kW and 350 kW turbines in India. Suzlon was not just a supplier, but also an installer,
operator and caretaker of wind turbines. To gain expertise in wind turbine technology, Suzlon entered
into a technical collaboration agreement with Südwind in 1996. According to this agreement, Südwind
agreed to share its engineering knowledge with Suzlon in return for royalty payments on every
Suzlon-made wind turbine sold for the next five years. However, in 1997, Südwind went bankrupt.
7
Southern African Alternative Energy Association http://www.saaea.org/wind.html, accessed on January 12, 2014
8
Global Wind Energy Council: Global Wind Statistics: 2013, April 9, 2014, http://www.gwec.net/wp-
content/uploads/2014/03/GWEC-Global-Wind-Report_9-April-2014.pdf, accessed on April 10, 2014.
9
Southern African Alternative Energy Association, http://www.saaea.org/wind.html, accessed on January 12, 2014
10
Global Wind Energy Council: Global Offshore: Current Status and Future Prospects, http://www.gwec.net/global-
offshore-current-status-future-prospects/, accessed on January 12, 2014.
11
1 USD = INR 31.41 in 1995, (Index Mundi:
http://www.indexmundi.com/xrates/graph.aspx?c1=INR&c2=USD&days=7000, accessed on January 12, 2014)
Balancing the Power Equation: Suzlon Energy Limited | 3
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Seizing the opportunity, Tanti hired Südwind engineers and started manufacturing wind turbines in
India. Suzlon’s portfolio now included 270 kW, 300 kW, 350 kW, 600 kW and 750 kW wind turbines.
At that time, the Indian wind industry was dominated by Vestas (Denmark), Enercon (Germany)
and NEPC (an Indian company that had a technical collaboration with a Danish company called
Micon). To compete with these firms, which were offering European-made turbines, Suzlon started
selling wholly indigenous turbines that were much cheaper. Suzlon manufactured the turbines in-
house, which allowed it to maintain a tighter control over the supply chain, thereby reducing its costs
and enabling faster delivery of orders. Backward integration targets, such as small-scale local
suppliers of turbine parts, began appearing in India in the 1990s. Suzlon acquired many such local
targets to establish manufacturing units for turbine parts. With its expanding manufacturing
capabilities, Suzlon moved up the value chain from low-tech to mid-tech activities. It imported and
then adapted foreign technologies to suit domestic wind conditions of lower average wind speeds.
Although the technologies were mostly mid-tech and standardized, manufacturing activities provided
the company with critical operational knowledge. As noted by a Suzlon executive:
In the initial years, there was less focus on R&D. However, indigenizing imported
technology was happening all along. You cannot always just import the knowledge; you
have to develop your own means. That is a major task. Take, for example, wind turbine
generators. They are specially designed for wind. We got that technology from Elin,
Austria [a generator supplier]. But then, with their consultation, we manufactured
generators in our own plants. At the same time, we designed generators for other turbine
categories. Adaptation of technology to suit the Indian environment was what was
achieved.
To manufacture an entire turbine from different components, it was necessary to have integrated
plants. Recognizing this need, Suzlon lobbied for and then developed special economic zones (SEZs)
in India. SEZs were created in developing countries to foster industrial development, foreign direct
investment (FDI) and exports. Suzlon’s knowledge of local institutions helped it foster such
institutional entrepreneurship. Moreover, it encouraged its suppliers to relocate to these SEZs, close
to its plants, to further ensure reliable supply. As an early customer of wind energy, Tanti was well
aware of the large initial capital investment required to set up infrastructure. He used this
experience to help clients a rrange 75% of the initial investment by educating lending banks about
t h e reliability and cost advantage of wind power over traditional power sources. Suzlon also
performed site surveys for customers to identify the most promising wind sites for both smaller and
larger projects, such as the wind farms. For example, one of Asia's largest wind farms, operated by
Suzlon, was located in Kutch, a coastal region in Gujarat. The farm made use of the region’s consistent
wind profile and abundant non-agricultural land.
Tanti’s business approach was customer focused, based on a knowledge of local market
conditions and an operational knowledge of foreign technologies. He strived to keep manufacturing
costs low, and in a mere four years after its inception, Suzlon dominated the Indian wind power
market with close to 50% market share.
GROWING THROUGH ACQUISITION
In the late 1990s, the U.S. and Indian markets for wind power witnessed rapid growth. By 1999,
India had become one of the top five countries in terms of installed wind power capacity. Germany
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was the top market for wind power followed by the U.S., Denmark and Spain. The leading
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manufacturers were Vestas, Enercon and Gamesa (Spain). The Kyoto Protocol of 1997 had
further propelled the growth of t h e clean energy sector in Europe and North America. With the
12
“Global Wind Energy Market Report,” American Wind Energy Association, 1999, 1-9.
http://www.awea.org/pubs/documents/globalmarket1999.html, accessed on August 26, 2010.
13
The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate
Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the
European community for reducing greenhouse gas emissions (United Nations Framework Convention on Climate
Change: Kyoto Protocol, http://unfccc.int/kyoto_protocol/items/2830.php, accessed on September 10, 2010.)
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experience it had obtained in the Indian market and its strong financial position, Suzlon was now
ready to enter the global wind rush.
Compared to its overseas counterparts, the India-based Suzlon had lower operating costs. The 5-
6% lower manpower cost and the 10-12% lower raw material cost-to-sales ratio in India reduced the
price of a product by 15%. However, the wind power industry was a technology-intensive emerging
industry with limited advantages for a cost-only strategy. The industry leading European firms were
committed to research and development (R&D) and constantly pushed the industry’s technology
frontier forward. Clearly, Suzlon with its standard technology could not successfully compete in the
international market. Further, it was considered a non-serious player on account of being neither
European nor American. Locational disadvantage posed many hurdles for the nascent company,
especially since India was primarily known as an exporter of software and services, not hardware.
Around the same time, Suzlon started experiencing shortages of critical parts such as rotor blades,
which slowed down the pace of its projects. The transaction costs of purchasing such parts in the
market were much higher than controlling the supply internally. In an effort to reduce costs, generate
internal expertise in turbine technology and increase its presence in global markets, Suzlon
orchestrated a series of acquisitions and technology licensing agreements (see Exhibit 1). Describing
the company’s early acquisition strategy, a Suzlon executive said:
Acquisition targets have been selected based on the evolution of the company. The
process has been driven by the chairman’s [Tulsi Tanti’s] vision of what Suzlon is to be
as a business. Early acquisitions were a mix of getting the team as well as the
technology.
As Europe was considered the hub for wind power, Tanti focused on acquiring European talent.
In 2000, he acquired AE-Rotor Techniek BV, a bankrupt Dutch firm, to set up a rotor blade design
facility. T he following year , he established a licensing agreement with th e Dutch firm Aerpac
B.V. to gain access to their rotor blade design expertise. To produce different varieties of rotor blades
in India, he bought manufacturing and marketing rights from Enron Wind, a bankrupt American
manufacturer of rotor blades. This purchase also gave Suzlon state-of-the-art production line and
technical support. By 2002, Tanti had set up an R&D subsidiary in Germany by acquiring the
German firm AX 215 Verwaltungsgesellschaft mbH. In 2004, Suzlon set up a joint venture with one
of its generator suppliers, Elin Motoren Gmbh of Austria, and began manufacturing generators in
India (see Exhibit 2).
With every acquisition, Suzlon’s portfolio became richer. In 2000, it began manufacturing 1 MW
wind turbines. By 2004, 1.25 MW and 2 MW wind turbines were part of its portfolio (see Exhibit 1,
panel B). It was ranked sixth in terms of global installations of turbines in 2004. To fulfill its growth
aspirations, in 2005, Suzlon sought to raise funds with an initial public offering. The share issue
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was very successful and raised about US$342 million. After this, Tanti started planning his next
move to enter the big league of offshore wind turbine manufacturers. A Suzlon executive explained
the company’s revised knowledge acquisition strategy:
Today Suzlon has a fair amount of [output] knowledge. The next acquisitions will be
focused on what technological gaps exist, what future markets are expected to be, what
future technologies are expected to be, [and] what technological discontinuities are
expected. Now the acquisitions will be more systematic, futuristic and strategic. Now it is
based on innovation — what do I need to build future products?
Post-2006, Suzlon initiated two of its largest and most important acquisitions. In 2006, it acquired
Hansen Transmissions of Belgium (Hansen), the second largest gearbox manufacturer in the world.
In 2007, it acquired REpower Systems AG (REpower), a large German turbine manufacturer, whose
product portfolio included the largest multi-megawatt offshore wind turbine. Through these
acquisitions, Suzlon aimed to build its knowledge portfolio in key technology areas.
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While Suzlon maintained India as its major manufacturing base to leverage locational cost
advantage, it established large manufacturing facilities in high-growth markets, namely the U.S. and
China. In 2005, Suzlon set up its subsidiary in Pipestone, Minnesota, in the U.S., to manufacture
rotor blades. By 2007, it had set up a subsidiary in Tianjin, China, to make complete wind turbines.
Such local factories considerably reduced the cost of transporting heavy turbine parts from the
manufacturing facility to the installation site and ensured that projects were completed on time.
Suzlon received its first international order in 2002 from DanMar and Associates, U.S., for a 22.8
MW wind farm project to be developed in the state of Minnesota. From that point onwards, its
international sales began to rise. By 2006, Suzlon had started receiving major orders from China
and Europe, and in 2007, its international sales overtook its domestic sales (see Exhibit 4).
Suzlon also gained locational advantages by establishing R&D centers and its international
headquarters where it could access world-class industry-specific talent pools. In 2001, Suzlon set up
a subsidiary for rotor blade R&D in the Netherlands to utilize Dutch expertise in aerodynamic blade
design. The German subsidiary set up in 2002 was aimed at accessing German engineering
skills in designing wind turbines. In 2004, as a strategy for global growth, Suzlon moved its
international marketing headquarters to Denmark. As for its Indian headquarters, a Suzlon executive
explained the company’s intentions as follows:
R&D strategies are decided between the CEO, the head of technology along with the
[regional] business heads … Innovation system is highly centralized. Our vision is to
avoid duplication and centralize R&D decision making … We are expanding advanced
R&D functions here in India now. We have set up some product development teams
here. The ambition is to transfer work here.
The strategy of vertical integration, coupled with the geographical dispersion of value chain
activities to appropriate locations, served Suzlon well, making it a global brand.
COMPETITION
In shaping its strategic framework, Suzlon had to contend with a host of competitors. Industry
incumbents such as Vestas invested heavily in R&D and had established a global R&D network. For
example, Vestas invested approximately US$318 million in R&D in 2008, which was about 3.8% of its
revenue. Comparatively, Suzlon’s investment in R&D in the same year was approximately US$10
million, 0.69% of its revenue. Vestas, supported by its global R&D network, had a strong portfolio of
wind technology patents (see Exhibit 3). It offered a variety of onshore and offshore wind turbines,
ranging from 850 kW to 3 MW. Further, in the offshore era (see Exhibit 1, panel A), many large firms
including diversified players such as General Electric (GE) and Siemens, entered the industry. Their
existing knowledge in a number of technological domains, strong R&D focus and deep pockets
intensified the technology-based competition.
Apart from its European and American competitors, Suzlon faced strong competition from
Chinese manufacturers, namely Sinnovel and Goldwind. These manufacturers primarily catered
to the rapidly growing Chinese market. Propelled by the enactment of new energy laws, China
accounted for nearly one-third of the total global increase in wind power capacity in 2009, and by
2011-12, it had become the world’s largest market with a capacity of 25.8 GW. China’s
energy law of 2004 offered tax incentives and preferential loans to renewable energy companies
and required Chinese utility companies to purchase the entire amount of generated renewable
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power at a fixed price. Apart from increasing the use of renewable energy, the country
15
Global Wind Energy Council, Regions: China. http://www.gwec.net/index.php?id=125&L=0%252525B4, accessed on
August 26, 2010l; Chandrasekhar, R. and S. Sridharan. “Suzlon Energy Inc.,” Case: 909M37. London, Canada: Ivey
Management Services, 2009, 1-17; and Vietor, R. and J. Seminerio. “The Suzlon Edge,” Case: 9-708-051. Boston:
Harvard Business Publishing, 2008, 1-26.
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16
implemented several policies to promote the domestic turbine manufacturing industry. Up until
17
late 2009, the Chinese government enforced a 70% local content rule to reduce imports.
Moreover, foreign manufacturers were required to enter into joint ventures with Chinese firms and
18
were typically required to transfer their technology to these firms. As a result, the country had
19
about 80 wind turbine manufacturers, Sinnovel and Goldwind being the largest of them.
ACQUISITION OF HANSEN TRANSMISSION
In March 2006, Suzlon acquired Belgium-based Hansen Transmission, the second largest gearbox
manufacturer globally. The acquisition of this manufacturing leader of wind turbine drive trains and
gearboxes was transacted at US$563 million in cash to quickly de-bottleneck supply issues. This
provided Suzlon with high-level vertical integration in the wind turbine industry and the capacity for
manufacturing the major components of wind turbines, not only gearboxes but also rotor blades,
generators and even towers. Suzlon, along with Hansen, was supplying more than two-thirds of the
world’s gear-driven wind turbines by the end of 2006.
Not only did Hansen have strong R&D capability, it also owned a manufacturing facility based on
cutting-edge technology. Suzlon intended to increase Hansen’s output of wind turbine gearboxes
fourfold — from 3,800MW to 14,200MW — by establishing new facilities for manufacturing in China
and India. It even listed Hansen Transmissions on the London Stock Exchange following a
successful IPO. The share issue not only raised US$584 million, it also bolstered the confidence of
investors. This acquisition helped both companies; Hansen could wipe out its debt while Suzlon could
pursue its growth objectives without facing supply shortages. The move was a great success, with
Hansen’s market capitalization increasing to US$2.34 billion immediately after the stock issue, more
than four times the price Suzlon paid to acquire it.
A few years later, in November 2011, Suzlon divested its entire stake in Hansen to ease cash flow
needs. The acquisition had proved beneficial to Suzlon by catering to its manufacturing and R&D
needs. Suzlon signed a long-term contract with Hansen to ensure the supply of parts as and when
required.
ACQUISITION OF REPOWER
Founded in 2001, REpower was the result of a merger of five German companies — three turbine
manufacturing companies, one company with research and engineering expertise and one company
with project development skills. Its primary focus was the research, design and development of wind
turbines. REpower also invested its R&D budget in other components such as rotor blades, controls,
electronic systems, tower and gear units but manufactured them through subcontractors by licensing
out its technology. Compared to Suzlon, it was a much leaner company. REpower quickly became the
leader in wind technologies, including offshore multi-megawatt wind turbines. It developed the first
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commercially deployed offshore wind turbine, the 5 MW model installed in the North Sea. Talking
about REpower’s technological superiority, an executive of the company said:
16
August 26, 2010; and Lewis, J. “A Review of the Potential International Trade Implications of Key Wind Power Industry
Policies in China,” Report, The China Sustainable Energy Program, 2006, 1-15.http://www.resource-
solutions.org/pub_pdfs/China.wind.policy.and.intl.trade.law.Oct.07.pdf, accessed on August 26, 2010.
17
“China: Removal of Local Content Requirement on Wind Turbines,” Global Trade Alert, May 24, 2010,
http://www.globaltradealert.org/measure/china-removal-local-content-requirement-wind-turbines, accessed on August 26,
2010; and Vietor, R., and Seminerio, J. “The Suzlon Edge,” Case: 9-708-051. Boston: Harvard Business Publishing,
2008, 1-26.
18
Lewis, J. “A Review of the Potential International Trade Implications of Key Wind Power Industry Policies in China,”
Report, The China Sustainable Energy Program, 2006, 1-15.http://www.resource-
solutions.org/pub_pdfs/China.wind.policy.and.intl.trade.law.Oct.07.pdf, accessed on August 26, 2010
19
August 26, 2010.
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I believe that our technology is the best there is. We continue to increase capacity but at
the same time reduce service demand. Our technology is refined, highly reliable and
mechanically the most efficient. We have a system approach and innovate along the
entire process from capturing wind to feeding it into the grid. This is not a problem since
the customer really does only care about efficiency and reliability.
Offshore installations are very complex due to the installation hassle, the salt water and
air exposure and the access for maintenance. In addition, the potential for efficiency
gains is still greater. In addition, there are very strong forces at play. Our technology can
deal with those.
Despite its strengths, around 2004, REpower, faced with increasing costs and decreasing
profitability, began to attract bidders, including its major shareholder AREVA S.A. of France, the
largest manufacturer of nuclear power plants. The French firm’s bid for REPower was an attempt to
diversify its business interests. Suzlon tabled a significantly higher competing offer (see Exhibit 6),
thereby setting off a bidding war with the French company. Suzlon ultimately prevailed and acquired
33.85% of REpower shares and 87.1% voting rights in April 2007. The cost of the acquisition was
€1.34 billion. This takeover of a European company by an Indian one signaled the overall
globalization of the wind industry, over which Europe was steadily losing its domination. Commenting
on the acquisition, REpower’s then CEO explained, “In the short term, we intend to define a joint
strategy with Suzlon to realize synergies which result from the use of the component capacities of the
Suzlon group in combination with REpower’s outstanding technology.”
The deal was designed to occur in stages over a period of about two years, during which Suzlon
would buy the stakes of two major stakeholders of REpower — the Portuguese group Martifer (25.4%
stake) and AREVA (~30% stake). In a press release in June 2007, REpower stated:
The innovative structuring of the deal is designed to phase cash outflows for the entire
controlling stake … while immediately accruing synergy benefits … the complementary
product portfolios and R&D strategies will also drive the accelerated development of the
next generation of more robust and cost effective wind power solutions, particularly in the
offshore wind energy arena.
Recalling the importance of the acquisition, a Suzlon executive noted:
REpower acquisition was a bold strategic step. This allowed us to go into the field of
offshore. These are real huge turbines. Onshore turbine capacity is usually 2MW.
Compared to that, these have much larger capacities. Because of higher wind
availability, these capacities are possible. So the goal was to get that technology from
REpower.
As a first step towards this technical collaboration, Suzlon and REpower, with equal stakes, formed
Renewable Energy Technology Center (RETC) in Hamburg, Germany in February 2008. RETC was
meant to focus on research, innovation, training, validation and technical processes. REpower’s then
Chief Technology Officer (CTO) explained:
In RETC, we intend to implement innovative projects concerned, for example, with new
materials and manufacturing processes, with increasing efficiency or with new drive
concepts — in short, with everything that will significantly influence the development of
the next REpower turbine generation.
A Suzlon executive added, “We are sharing resources in this case and together we can implement
investments, which neither REpower nor Suzlon was able to do alone in the past.”
The original goal of realizing synergies and accessing REpower’s technological knowledge,
however, remained only on paper. The acquisition of REpower, while celebrated in India, did not
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receive a similarly favorable response in Germany. The German media lamented the potential loss of
strategic know-how and skilled jobs to India and the erosion of Germany’s prowess in the wind
power industry. Reports of a dispute between REpower and Suzlon began to appear in February
2008, but were firmly rejected by REpower. However, in April 2008, The Wall Street Journal covered
21
the challenges Suzlon was facing in accessing REpower’s technology. When Suzlon requested
REpower to share the blueprints of its blades, REpower refused, taking cover under German
corporate law. Suzlon, with 87.1% voting rights in the company, was considered a minority
shareholder because of its 33.85% shareholding. According to German law, a minority shareholder
in a company could be considered a competitor, in which case the company was not required to
share its technical knowledge. Commenting on technology transfer, an REpower spokesperson
22
explained, “We’re not sure we want to give [the technical know-how] to a competitor.”
CHALLENGES
The global financial meltdown of 2008 caught Suzlon on the wrong foot. The collapse of Lehman
Brothers, one of the biggest financiers of wind power, put the brakes on Suzlon’s upward swing as
debt became both scarce and very costly. Both Suzlon and REpower experienced a reduction in
sales, which intensified the pressure on Suzlon’s financial performance. Its falling profit margin and
mounting debt concerned investors (see Exhibits 4 and 5). Multiple challenges were threatening the
profitability of the company. In a troubled global economy, it was not easy for Suzlon to sustain its
aggressive growth target of 50% per annum.
The increase in Suzlon’s debt largely came from the REpower acquisition. Given the problems that
Suzlon faced with this acquisition, a question that often arose was, did Suzlon really need REpower’s
technology? The answer, in fact, was simple: Suzlon knew that offshore wind turbines were the next
big thing because offshore power generation utilized stronger and steadier sea winds that increased
23
turbine “availability” multifold when compared to onshore power generation. Higher availability would
lead to more electricity produced per installed MW and hence cheaper electricity generation.
However, it was not easy to install such huge offshore turbines, and their connection to the grid
presented major roadblocks. Moreover, the design and engineering of offshore and onshore turbines
24
were divergent activities. An executive at GE noted:
Comparing traditional land-based wind projects with offshore projects is a little like
comparing the aircraft and aerospace industries ... Offshore projects take the
engineering science of wind power to a new level of sophistication. The physics and
logistics involved with foundations, towers, wave conditions, salt, power transfers, etc.,
25
pose a great challenge offshore.
The diverse capabilities, risks and large capital investment in offshore wind turbine projects
required the participation of a whole new set of industry players. These included firms from
26
various sectors such as oil and natural gas, electricity, shipbuilding and heavy engineering. A
German wind industry expert observed:
Offshore wind generation brought a new business opportunity to shipyards. Many

shipyards in Germany and the U.K. entered this industry. Many of them could redeploy
their assets and skilled workers to manufacture steel foundations for wind parks. Those
specializing in yachts and frigates used their composite fiber material know-how to make
21
Wright, T. “India Windmill Empire Begins to Show Cracks,” The Wall Street Journal, April 18, 2008,
http://online.wsj.com/news/articles/SB120846287761023921, accessed on April 2, 2010.
22
Ibid.
23
An industry term that roughly corresponds to capacity utilization.
24
Asmus, P. “Offshore Wind Energy Takes Off at General Electric: Interview with Steve Zwolinksi, GE Wind Energy,”
Refocus, 2003, 4(6): 54-56.
25
Ibid.
26
Markard, J. and R. Petersen. “The Offshore Trend: Structural Changes in the Wind Power Sector,” Energy Policy,
2009, 37(9): 3545-3556.
ISB049
rotor blades for turbines. In addition, many heavy engineering firms, for example, those
doing bridge construction also entered the industry. If you talk to those guys, they can
quickly show you how the blueprint for a bridge can be changed to an offshore turbine
27
foundation.
Offshore wind was a discontinuous change for the industry, which resulted in increased entry
and fiercer competition. A major shift came in the form of the intellectual property rights (IPR)
regime. More and more firms and independent inventors began patenting their technology. Even
established wind turbine manufacturers who had relied on informal innovation systems, such as
28
Vestas, started rethinking their R&D strategies. Since REpower, with its technological prowess,
was a significant player in this market, Suzlon went after it, rather than trying to build offshore
technology on its own. To survive in the technology-driven wind power market, Suzlon had to
strengthen its in-house R&D capabilities. While it had dedicated R&D centers, its intellectual
property output so far had been significantly lower than the competition (see Exhibit 3).
Operating in different countries was advantageous, but their diverse wind profiles demanded that
Suzlon have varied product offerings based on type of blades, a turbine’s rated power and grid
29
interface. This requirement to change with every market presented significant design challenges.
The need for different designs fed back to the need for stronger R&D capabilities. Further, cross-
cultural integration of people from different nationalities working towards a common objective was more
daunting than it seemed. It was difficult to manage the talent pool in high-growth economies such as
30
China and India since employees had numerous opportunities before them.
To make matters worse, there were reports of turbine blades splitting at three wind farms of Edison
Mission Energy in the United States. As many as 1,251 blades were recalled and the balance order of
31
300 Suzlon turbines, which were to be delivered in 2009, was cancelled. Ashish Dhawan, one of the
senior managing directors at ChrysCapital Investment Advisors, observed that the coin could flip in
32
either direction—Suzlon would either be a huge success or would blow up altogether. The company
responded to the blade-cracking issue by introducing a retrofit program for the faulty blades, thus
33
retaining the customer. Tanti knew that the task of maintaining excellent product quality was
particularly important for emerging market firms, which typically lacked legitimacy and credibility.
Therefore, one of the immediate challenges before Suzlon was to ensure that no such quality
jeopardizing incident was repeated.
INTEGRATION OF REPOWER
Suzlon’s challenges made the integration of REpower extremely critical. For technology access,
Suzlon would need to increase its ownership stake, become a majority shareholder and complete a
domination agreement. This agreement was basically a control and profit transfer agreement enabling
the majority shareholder to take over the management of the acquired company. By September 2008,
Suzlon had a 67.22% stake and 89.7% voting rights in REpower. Suzlon then tried to initiate the
domination agreement. However, REpower was in the midst of negotiating with a syndicate of banks to
finance its future growth. The financing agreement prohibited REpower from entering into a domination
agreement with Suzlon. Constrained by the financial crisis and its own operating challenges, Suzlon
finally agreed to withdraw its domination agreement in October 2008.
27
From interviews conducted by the authors.
28
Pedersen, T. and M. Larsen. “Vestas Wind Systems A/S—Exploiting Global R&D Synergies,” Case: 9B09M079,
London, Canada: Ivey Management Services, 2009, 1-17.
29
Vietor, R. and Seminerio, J. “The Suzlon Edge,” Case: 9-708-051. Boston: Harvard Business Publishing, 2008, 1-26.
30
Ibid.
31
Ibid.
32
Ibid.
33
Sridharan, R. “Tulsi Tanti: We are Well-Positioned Compared to Rivals,” The Economic Times, December 18, 2009.
http://economictimes.indiatimes.com/opinion/interviews/We-are-well-positioned-compared-to-
rivals/articleshow/5349759.cms?curpg=2, accessed on September 18, 2010.
ISB049
Although technology access was delayed, Tanti continued to increase Suzlon’s ownership stake in
stages and make changes to the management and board of REpower by appointing people favorable
to its goal (see Exhibit 6). Finally, in 2011, Suzlon completed the acquisition of 100% stake in
REpower and finally began the integration process. The process started with accessing lower-end
manufacturing knowledge through contract production of REpower’s multi-megawatt turbines in India.
Commenting on the relationship with Suzlon, a REpower R&D executive noted:
They [Suzlon] are our shareholders. They [certainly] brought in money. They know their
business very well. They have some great marketing expertise … we respect that. They
have helped us on some [manufacturing-related] process optimization topics, but [R&D-
wise] they are pretty much hands off … They listen to what we have to say [in R&D
matters].
WHAT NEXT?
Contemplating Suzlon’s journey over the last several years, Tanti remained bullish on Suzlon’s
growth forecasts:
I am a fighter, I will not give up. Last two years, our entire focus was on liability
management. Now that we have completed the process, we are focusing on
increasing execution and improving operational performance ... We believe the worst
is over and that we are moving in the right direction, with a more positive external
34
environment. We hope to have the company back in a position of strength by FY15.
In Tanti’s mind, the worst was over. But was it? Could Suzlon move away from the image of a
“shareholder” and successfully integrate the German firm?
34
Prasad, R. “Worst is Over, Better Times Ahead for Us: Suzlon’s Chief Tulsi Tanti,” The Economic Times, December 13,
2013, http://articles.economictimes.indiatimes.com/2013-12-13/news/45162453_1_suzlon-energy-tulsi-tanti-wind-
turbines, accessed on April 24, 2014.
ISB049
EXHIBIT 1
PANEL A: DEVELOPMENT OF WIND POWER INDUSTRY

PANEL B: DEVELOPMENT OF SUZLON
Source: Created by the authors.
ISB049
EXHIBIT 2
SUZLON’S GROWTH MILESTONES THROUGH 2010
Year Company Country Relationship Expertise

1996 Südwind Germany Technology Licensing Wind turbine technology
sourcing
2000 AE-Rotor Netherlands Acquisition Rotor blades
2001 Aerpac B.V. Netherlands Technology Licensing Rotor blades
2001 Enron Wind Netherlands Manufacturing and Moulds, production line,

Marketing Rights technical support
2002 AX 215 Ver. Germany Acquisition R&D
mbH
2004 Elin Motoren Austria Joint Venture Generator manufacturing
Gmbh
2006 Hansen Belgium Acquisition Gearbox
Transmissions
2007 Repower Germany Acquisition Large capacity offshore
turbines
Sources:
Suzlon website: http://www.suzlon.com/about_suzlon/milestones.aspx?l1=1&l2=1&l3=65, accessed on January 11,

2014; and Kumar, N., P. Mohapatra, and S. Chandrasekhar. “Suzlon: Conceiving the Global Wind Energy Industry,” In
India's Global Powerhouses: How They Are Taking On The World, 1st edition, Boston, MA: Harvard Business Press,
2009, 145-156
Balancing The Power Equation: Suzlon Energy Limited | 13
ISB049
EXHIBIT 3
GLOBAL MARKET SHARES OF WIND TURBINE MANUFACTURERS IN 2013
Company Market Share (%)

Vestas (Denmark) 13.67
Enercon 10.31
(Germany)
Goldwind (China) 10.15
Siemens 7.29
(Germany)
Suzlon (India) 6.31
PATENT OUTPUT OF WIND TURBINE MANUFACTURERS AS OF 2010
Company International Patents US Patents

Vestas 296 22
Enercon 118 50
REpower 65 15
Gamesa 46 4
GE 28 111
Siemens 22 3
Suzlon 5 15
Sinnovel 0 0
Goldwind 0 0
Sources:
World Intellectual Property Organization, PatentScope: Online Patent Search Database, Geneva, Switzerland, 2010,
accessed on August 26, 2010; United States Patents and Trademark Office, PatFT: Online Patent Search Database,
Alexandria, VA, 2010, accessed on August 26, 2010; “Wind Turbine Manufacturers: Global Market Shares, Cleantech
Magazine, 6(2), http://www.cleantechinvestor.com/portal/wind-energy/10502-wind-turbine-manufacturers-global-market-
shares.html, accessed on January 14, 2014; IHS Emerging Energy; BTM Consult; and “WTG OEM Market Shares
2009,” Research Note, MAKE Consulting, 2010, http://www.make-consulting.com/latest_research0.html, accessed on
August 26, 2010.
ISB049
EXHIBIT 4
FINANCIAL HIGHLIGHTS
(in INR Million)
2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04
Sales 187,430 210,820 178,790 206,200 260,820 136,790 79,850 38,410 19,420 8,570
EBIDTA (12,960) 18,210 10,470 9,430 28,160 19,240 12,950 8,650 4,580 1,390
Interest 15,180 13,790 11,360 11,950 9,010 5,320 2,520 500 350 210
Depreciation 7,400 6,610 6,570 6,630 5,730 2,893 1718 715.9 493.3 136.1
Net profit/ (loss) (47,240) (4,790) (13,240) (9,830) 2,360 10,300 8,640 7,590 3,650 1,440
Equity share 3,550 3,550 3,550 3,110 3,000 2,993 2,877 2,875 869.2 243.5
capital
Gross fixed 158,090 151,610 132,650 119,510 170,860 67,190 47,740 7,940 3,880 2,030
assets
Net fixed assets 123,820 126,020 113,320 105,740 152,650 56,870 40,730 6,400 3,070 1,720
Total assets 290,070 324,270 292,200 292,050 378,060 263,900 125,410 49,010 20,870 10,090
Source: Suzlon’s Annual Reports.
ISB049
EXHIBIT 5
SUZLON’S STOCK VERSUS BOMBAY STOCK EXCHANGE (BSE)
Source: Yahoo Finance, https://in.finance.yahoo.com/q/bc?s=SUZLON.BO&t=my&l=on&z=l&q=l&c=, accessed on April

11, 2014.
ISB049
EXHIBIT 6
ACQUISITION OF REPOWER: KEY EVENTS

AREVA announces takeover offer Jan 2007
at €105 per share
Suzlon announces takeover offer
Feb 2007 at €126 per share
AREVA raises its offer to €140 per

share Mar 2007
Suzlon raises its offer to €150

Apr 2007 per share
AREVA announces not to raise

offer any further. May 2007 Suzlon secures 33.85% shares and
87.1% voting rights. Tulsi Tanti
becomes the chairman of the
Jun 2007 supervisory board of REpower
Financial year of REpower which
ran as calendar year changes to
Indian format (April-March) Oct 2007
Founding CEO of REpower
moved to supervisory board. New
Jan 2008 CEO (Suzlon insider) takes over.
RETC founded. REpower Suzlon CEO becomes a member
management rejects media of the supervisory board
reports on dispute with Suzlon
Feb 2008
REpower’s founding CEO and its Wall Street Journal article published.
Apr 2008 New chief supply chain officer (Suzlon
former chairman of the board (an
AREVA insider) are replaced by insider) joins REpower
Suzlon insiders on the supervisory Jun 2008
board
Suzlon holds 67.22% shares and 89.7%
voting rights. Tulsi Tanti initiates
Sep 2008 domination agreement to secure
Tanti withdraws domination REpower’s management control
agreement due to financing
regulation and financial constraints Oct 2008
REpower receives growth
May 2009 financing of €600 million
The contract of REpower CTO
(founding CTO) extended to 2013
Dec 2009
Suzlon to support REpower’s sales
Jan 2010 in the U.S., Australia and New
New CEO (third party) joins
REpower Suzlon holds 95% of REpower,
Jul 2010
begins squeeze out of minority
shareholders at €142.77 per share
Apr 2011 to acquire to 100% of REpower
REpower’s multi-megawatt turbines
to be produced in India
Jun 2011
Suzlon completes squeeze out of

Oct 2011 minority shareholders, owns 100%
REpower CTO (founding CTO) of REpower
retires. New CTO is a senior Mar 2013
technology executive at Vestas
Apr 2013 Job cuts announced at REpower.
Announcement of globalizing central
Jan 2014 functions
REpower becomes Senvion
Source: Compiled by the authors from information provided by company.

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Indian School of Business

January 27, 2015

Snehal Awate | Ram Mudambi | Arohini Narain

Balancing the Power Equation: Suzlon Energy Limited

Suzlon Website, http://www.suzlon.com/about_suzlon/l3.aspx?l1=1&l2=1&l3=11, accessed on January 17, 2014.

THE GLOBAL WIND POWER INDUSTRY

2 | Balancing the Power Equation: Suzlon Energy Limited

Balancing the Power Equation: Suzlon Energy Limited | 3

GROWING THROUGH ACQUISITION

Balancing the Power Equation: Suzlon Energy Limited | 5

ACQUISITION OF HANSEN TRANSMISSION

Balancing the Power Equation: Suzlon Energy Limited | 7

Recalling the importance of the acquisition, a Suzlon executive noted:

8 | Balancing the Power Equation: Suzlon Energy Limited

Offshore wind generation brought a new business opportunity to shipyards. Many

Balancing the Power Equation: Suzlon Energy Limited | 9

10 | Balancing the Power Equation: Suzlon Energy Limited

Balancing the Power Equation: Suzlon Energy Limited | 11

PANEL A: DEVELOPMENT OF WIND POWER INDUSTRY

Source: Created by the authors.

12 | Balancing the Power Equation: Suzlon Energy Limited

SUZLON’S GROWTH MILESTONES THROUGH 2010

Year Company Country Relationship Expertise

2001 Aerpac B.V. Netherlands Technology Licensing Rotor blades

2001 Enron Wind Netherlands Manufacturing and Moulds, production line,

Suzlon website: http://www.suzlon.com/about_suzlon/milestones.aspx?l1=1&l2=1&l3=65, accessed on January 11,

Balancing The Power Equation: Suzlon Energy Limited | 13

GLOBAL MARKET SHARES OF WIND TURBINE MANUFACTURERS IN 2013

Company Market Share (%)

PATENT OUTPUT OF WIND TURBINE MANUFACTURERS AS OF 2010

Company International Patents US Patents

14 | Balancing the Power Equation: Suzlon Energy Limited

(in INR Million)

Source: Suzlon’s Annual Reports.

Balancing The Power Equation: Suzlon Energy Limited | 15

SUZLON’S STOCK VERSUS BOMBAY STOCK EXCHANGE (BSE)

Source: Yahoo Finance, https://in.finance.yahoo.com/q/bc?s=SUZLON.BO&t=my&l=on&z=l&q=l&c=, accessed on April

16 | Balancing the Power Equation: Suzlon Energy Limited

ACQUISITION OF REPOWER: KEY EVENTS

AREVA raises its offer to €140 per

Suzlon raises its offer to €150

AREVA announces not to raise

Suzlon completes squeeze out of

Source: Compiled by the authors from information provided by company.

Balancing The Power Equation: Suzlon Energy Limited | 17

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