Global Business in Context

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Table of Contents
1.0 Introduction................................................................................................................................1

2.0 Company Profile........................................................................................................................1

3.0 Status quo of Host Country........................................................................................................2

4.0 Factors to Invest in the Host Country........................................................................................2

4.1 Host Country’s Government:.................................................................................................2

4.2 Host Country’s Solar Energy Market....................................................................................3

4.3 Taxation System....................................................................................................................4

4.4 FDI in Indian Solar Market....................................................................................................5

4.5 Resource of Host Country:....................................................................................................5

5.0 Porter’s Five Forces Application...............................................................................................6

5.1 Industry Rivalry: High...........................................................................................................6

5.2 Threat of New Entrants: High................................................................................................6

5.3 Bargaining Power of Suppliers: Moderate............................................................................6

5.4 Bargaining Power of Customers: High..................................................................................7

5.5 Threat of Substitute: Moderate..............................................................................................7

6.0 Mode of Entry:...........................................................................................................................7

7.0 Recommendations:....................................................................................................................8

8.0 Conclusion:................................................................................................................................9

Reference.........................................................................................................................................1
1.0 INTRODUCTION

Free market economies are contingent on entrepreneurs. Performance of the SMEs is one of the
most decisive factors in the economic performance of both developed & developing countries.
(Herath and Mahmood, 2013) SMEs are more likely to produce innovative products as they are
the driver for dispersing technology in the market. (Griffin and Ebert, 2006) SMEs are now
going globally by expanding from their local countries. Internationalization of SMEs strongly
correlates with Internet access in the path of international market development. (Mathews and
Healy, 2008) Expanding to the global market can help SMEs by taking advantage of the product
life-cycle and diminishing the impact of the fluctuating market. This report aims to analyze the
opportunity for global expansion for a UK-based SME & will analyze the potentiality of the
market to enter. Amidst Covid 19 and the economic recession it caused, the UK government put
a praiseworthy effort to save SME firms by reducing interest rates and supporting SMEs to
access bank loans and overdrafts. (Halima et al. 2021) At the start of 2021, SMEs account for
61% of the employment scenario in the UK and half of the turnover comes from the private
sector. (Darren, 2021)

2.0 COMPANY PROFILE

Evergen Group is an SME, based in Maidenhead, United Kingdom, which gives smart energy
solutions to residential spaces. The company is on a mission to emit CO2 from the environment
and reduce energy consumption. Energy consumption is one of the threats to mankind in the 21st
century as we are diminishing the non-renewable source of energy. Smart energy solutions are
necessary for high energy consumption industries as well as households. Smart energy solutions
enable consumers to minimize energy cost in ways like: shifting demand from non-renewable
electricity, optimization of energy usage and accessibility to information regarding energy usage.
(Shivakumar et al. 2018) Evergen initiated their work by installing solar systems at residential
houses and now they have dispersed their work to energy management in commercial spots, the
public sector and battery storage all over the UK. Now they are the leading company in the UK
as a seller of solar systems.

3.0 STATUS QUO OF HOST COUNTRY

India’s economy is one of the fastest economy in the world while many foreign companies are
entering into the massive Indian market every year. The middle-class population with per capita
income rises makes a strong consumer base in the Indian market. (Vijay and Gunjan, 2016)
Several global leading companies are expanding their business in India by creatively using the
supply chain of the country and making products accessible to different corners of the country.
Indian market is big enough to have a perfect combination of both foreign & domestic
businesses. Local firms are continuously thriving & entering the market of the neighboring
countries.

4.0 FACTORS TO INVEST IN THE HOST COUNTRY

4.1 Host Country’s Government:

Indian government has set a target of 450 GW of renewable energy installed capacity but only
they could reach 147 GW by 2021. So they are eager to draw foreign investors’ attention to the
solar industry which is by far the most dominant segment of the renewable energy market.
(Amena, 2021) Foreign investors like independent wealth funds or global banks Goldman Sachs,
foreign investing organization like CIP and Japan's JERA currently own noteworthy stakes in
Indian solar projects. Indian government is actively pushing foreign investors with friendly
policies to decarbonize the Indian economy & find long-lasting ways of renewable energy. By
2022 when the world is facing difficulties with non-renewable energy production due to the high
price of raw materials, Indian government will more likely to reduce FDI barriers for foreign
companies to enter the Indian market.

4.2 Host Country’s Solar Energy Market

India has recently climbed up to the top of the renewable energy market with noteworthy energy
sources. By the end of 2021, India became the fourth leading market in the global renewable
energy industry with 147 gigawatts of capacity for the installation of renewable energy.
(Madhumitha, 2022) The country which is home to 1.4 billion people has a solar energy capacity
of 49.7 gigawatts in 2021, a 10.3 gw increase from the last year. (Madhumitha, 2022) As we can
see in the renewable energy industry, one-third of the renewable energy comes from solar.
Industry experts predict that the solar energy demand will rise in the upcoming future. According
to the forecast, Indian market solar energy market is ready to reach a CAGR above 8% by 2027.
The solar PV segment is predicted to have highest sales in the forecasted period as it is
comparatively cheaper & easy to install. (Mordor Intelligence, 2021) Evergen group can enter
into the Indian market due to its market capacity. They have 9 years of experience in solar PV
and battery systems which are cheaper & suitable for the Indian market.
 Indian Solar Market. Source: Mordor Intelligence

4.3 Taxation System

The taxation policy in India is two-folded consists of direct & indirect tax. There is import tax
for both solar modules & cells. For solar modules the tax rate is 40% and cells cost 25% tax.
These tax rates are for encouraging the local manufactures and to make the market dominated by
local firms.
4.4 FDI in Indian Solar Market

Foreign investors are likely to come to the Indian renewable energy market because of the offer
of ownership of up to 100% in any renewable energy projects. This offer is uncommon in many
emerging markets like China. There is a power purchase agreement which states that 25 years of
payment stream for the foreign investors in the renewable energy sector. (Amena, 2021) State
agencies are the highest purchaser of renewable capacity. They take the solar installation service
from the solar project developers. If they do not pay on time, then the foreign investors will be at
risk as they own stakes in the solar projects. But now solar project developers are building more
diversified portfolios than ever because of avoiding all of their projects in a certain state. This is
how they mitigate the chance of untimely payment for foreign investors. The foreign investment
allows be more competitive in the price-sensitive section of the Indian market than local funded
competitors.

4.5 Resource of Host Country:

Indian government is offering $500 billion in infrastructure assets for renewable energy where
the government-guaranteed projects are considered healthy projects because of equity returns of
14-16% which is higher than European countries. (Amena, 2021) Foreign investors backing up
the Indian solar market is a good sign for any foreign company to tap into the Indian market.
5.0 PORTER’S FIVE FORCES APPLICATION

5.1 Industry Rivalry: High

Indian solar energy market is not dominated by one single player. Rather the market is
fragmented into a few major players. Major companies include Adani Enterprises Ltd, Power
Private Limited, Emmvee Photovoltaic, Azure Power Global Limited, JinkoSolar Holdings
Company Ltd and First Solar. As there is not a single player dominating the market, it will be
easier to enter the market & change the perception of the consumers through high-quality
products.

5.2 Threat of New Entrants: High

Currently the Indian government has an open policy that has no entry barriers for new players to
enter the market. Government is encouraging new solar companies by subsidizing and reducing
tax rates to achieve its target of decarbonization. The industry itself requires low capital to
initiate. (Ali et al. 2019)

5.3 Bargaining Power of Suppliers: Moderate

India imported solar cells account for $633 million from April to December 2021. The amount
exceeds the previous fiscal year's import amount of US$572 million. (Uma, 2022) Solar panels
are mostly supplied from China & a few companies own the supplies. The suppliers are not great
in number but currently Indian manufactures are diversifying their supplies from other countries
as well. But now Malaysian & South Korean suppliers are also gaining shares in the import
percentage. In 2021, 79.1 millions USD worth of solar cells imported from Malaysia & 34.5
millions USD from South Korea that reduces the over-dependence on China. (Export, 2022)

5.4 Bargaining Power of Customers: High

The market is segregated with so many solar players. There are various registered & unregistered
competitors in the market that offer competitive pricing. Most consumers have the intention to
reduce prices in order to grab market share. Here, consumers are the decision-maker hence their
bargaining power is high.

5.5 Threat of Substitute: Moderate

The biggest substitute for solar energy would be grid electricity. The availability of grid
electricity is the biggest risk. But most of the solar companies are focusing on areas where the
grid electricity is not accessible. Also, other suitable substitutes will be wind electricity for
coastal areas, hydro electricity for hilltrack areas and biogas electricity. These substitutes are still
very uncommon in Indian market.

6.0 MODE OF ENTRY:

India is a big market and it is extremely difficult for an SME size firm to decide where it wants
to start its operation. The common methods for entering a foreign market are directly exporting,
licensing, acquisition, venture projects and foreign direct investment. Direct exporting requires a
sales representative or importing distributor. This method allows the option to select a foreign
representative. For a short period, it’s a good idea where you can utilize the potential market with
minimum investment and see how the market is reacting. For long-term sustainable growth in the
Indian Market, Evergen needs to put in strong market research which is not possible by a
secondary representative. Only the local players know the market well but will not partner up
with Evergen. So direct exporting is not a good idea for Evergen to enter the market. Again, the
global corruption index (2019) states significant corruption risks in business, ranging from 64.04
to 69.83. This high significance level discourages direct exporting and licensing up with any
mediatory entity. To truly understand the market & the consumer needs, Evergen should directly
enter the market. Direct investment occurs when the demand & market size are quite large
enough to justify a big amount of investment which the Indian solar market does.

7.0 RECOMMENDATIONS:

The off-grid market in India is as large as 300 million people living without connectivity to
electricity. (Sanjoy, 2015) For a small company, it really necessary to focus on a certain market
where the Indian market is so diversified. There are many options like entering into megacities or
district-level cities, or commercially focusing on suburban areas. Here are a few
recommendations:

● Small areas at the district level can be a great start where the demand is clear but the
market is not penetrated with diversified products.
● Market the product at minimum pricing so that it is most likely to grab the states like UP
and Bihar which have the low level of electrified houses. (Sanjoy, 2015) These markets
have the potential to reach millions of customers.
● An individual district of India is so big that it is large enough to focus on. So, Evergen
should focus on only one district in the initial phase.
● It is also important for ensuring credit sales for poor consumers who are most likely to
not afford one-time payments for the solar installation.
8.0 CONCLUSION:

Indian government is as much supportive to solar energy industry that it permits 100% foreign
direct investment in the renewable energy sector. That means there is no limit of ownership for
any foreign company to do business in Indian solar market. Government incentives include feed-
in-tariffs, exempt in custom duty, reduction in tax and so on. These initiatives make it easy for
foreign solar companies to join the Indian market but it also needs to keep in mind that
international players are rare in the Indian solar energy market whereas the domestic players face
a segregated market. Evergen needs to make decisions wisely and hope for sustainable market
growth.
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