Date: 9 October 2014 To: KIOTO Group Senior Management
From: Re: Your Your deteriorating position in the global solar thermal maret race
European market is changing, your customers are backward integrating into your own business, the Chinese are dominating through price dumping and while your lobbying eforts are admirable, do you really think it is enough to put the Chinese dragon to rest? Emerging markets show high potential particularly particularly due to your tremendous eforts in landing the KSA tender and establishing a track record in the region. Your white label products got you so ar but is it still the right approach in these changing times? Especially when the middle men are pocketing up to !"# between themsel$es, lea$ing you with a modest %&# margin. 1! "#O$%&M' "#O$%&M' (hat (hat is the main )under )underl*in l*ing+ g+ problem,o problem,opport pportunit* unit* in in this casecaseIn the .ace o. the intense pressure .rom competition/ hether it be the hinese price dumping strateg* or the ne threat .rom the bacard integration o. heating companies/ and the ine..icienc* o. the current distribution chain ia plumbers and installers that is hiing up the cost/ KIOTO Group has to decide hether it is enough to rel* on their technological and 3ualit* adantages/ this re3uires a deeper loo into hat ind o. product)s+ to .ocus on and ho is their customer reall* )holesale s retail+ and here is this customer located in order to establish a strong competitie position that ill generate a strong maret share and sustained sales and pro.it groth! 2! ISS&S' ISS&S' (hat (hat are are all o. o. the issue issuess releant releant to this casehinese are dominating the photooltaic )"5+ maret ith their lo prices/ made possible b* the signi.icant • decrease in production cost o. "5/ "5/ price dumping strategies/ lo labour costs/ no dut* tari..s in &uropean marets .or hinese imports/ and goernment baced inestments into hinese companies! &stablishing a 607 maret share in German* alone! To put it in perspectie/ G#&&8oneT& made 407 o. its business in German*! German*! Groth in the &uropean maret has been arti.iciall* in.lated b* goernment subsidies! Subsidies that hae been • either reducing or cancelled altogether since maret pea in 200! German maret su..ered a 2:7 decrease in one *ear hen subsidies plans ere stopped! &nd customer prices .or solar thermal energ* products )not "5+ are high due to the high margins demanded b* • holesalers );07+ and plumbers and installers added another 407 margin! G#&&8oneT& though onl* gets a 107 margin! These high prices increase the threat .rom cheaper substitutes such as gas or electric ater heaters! The compan* prides itsel. ith haing a seamless suppl* chain and e..ectie logistics serices/ a ell trained • permanent production team/ team/ optimi? and innoation that produces a high 3ualit* solar thermal s*stem! @07 o. nel* installed collectors in &urope ere deliered b* the heating industr*/ hich t*picall* consisted o. • large companies/ more and more o. these companies ere implementing their inAhouse productions o. collectors! Turning them into competitors and .orcing the compan* to see ne customers outside o. the heating industr*! industr*! ;! B8B%YSIS' B8B%YSIS' se a .rameor .rameor )"&ST/ )"&ST/ "orter/ "orter/ S(OT/ S(OT/ etc!+ etc!+ to anal*
8e entrants ) High pressure) %o barriers to entr* • ?i..erentiation based on 3ualit* and innoation .or solar thermal energ* products/ "5 is drien b* lo prices • Moderate capital re3uirements • Goernment subsidies incenties in some marets/ ;07 in hina/ high subsidies .or "5 in !S! • These .actors represent an attractie maret that is eas* to get into Supplier poer ) Low pressure) 8o threat o. .orard integration • #a materials prices going up )Bluminum :07/ opper 1:07+ • Suppliers are mainl* ra material proiders that are not liel* to go into the solar energ* business Substitute products (Moderate pressure) B lot o. cheap electric and gas products • Cossil .uel prices are also going up/ limiting the threat • The high end customer price is giing a* to cheaper alternaties #ialr* ) High pressure) B lot o. competitors/ especiall* .rom hina using lo prices to dominate maret $randed products business model in contrast to G#&&8oneT& Started claiming similar superior 3ualit* and o..ering long term guarantees and arranties Cierce competition .rom hina/ especiall* in the "5 maret $u*er poer (High pressure) ustomers are e=clusiel* holesalers and s *stem integrators • %arge pro.it margins o. the customers • Threat o. bacard integration )Deating industr*+ • The* bu* in large olumes/ giing them the poer to negotiate loer prices and rebrand and sell .or high margins This anal*sis shos an unattractie maret due to the high pressures .rom the di..erent .orces/ in particular rialr* and bu*er poer/ hoeer b* changing the customer and targeting retail the bu*er poer ill change dramaticall* and b* choosing hich products to sell and aoiding competing on price ith the hinese the rialr* ill also .aorabl* change! 4! B%TBTI5&S' (hat solutions can *ou thin o.1! ?rop the "5 product line altogether/ .ocus on solar thermal s*stems )&T and .lat panel collectors+/ eeping their O&M business model hile capitali? e..orts on high e..icienc*/ simplicit* o. the solar s*stem that can be sold as a ?IY IK&B lie it! :! #&OMM&8?BTIO8S' (hat ould *ou do- (h*-
(e recommend alternatie number to/ KIOTO Group strength lies in its #>? and innoation that is producing a 3ualit* product ith high e..icienc*! %eeraging this better product/ G#&&8oneT& can di..erentiate itsel. .rom the other brands/ hile at the same time o..ering a competitie price since the huge marups b* holesalers and s*stem installers are taen out and achieing better pro.it margins! ompeting ith the hinese in the "5 maret on price is a losing game/ and competing on the basis o. 3ualit* is here G#&&8oneT& can properl* leerage its strength! Blternatie one on the other hand/ eeps the poer in the hand o. the bu*er as the* control the price and reap the bene.its o. the high pro.it margins borne b* the end customer! Blternatie three can be used as a bridging point to reach alternatie number to/ b* .ocusing the compan*Es energ* on a maret that is still demanding "5 and o..ering high subsidies .or it hile de.ending itsel. against the hinese price dumping strategies b* imposing high import tari..s! The #>? e..orts in simpli.*ing the s*stem to a ?IY di..icult* leel ill surel* bene.it the installation team and reduce their costs!
