Series: Yale School of Management
Format: Raw, online case
Topics: Marketing, Operations, Public Policy, Competition and Strategy, Innovation, Global Business, Energy, Technology, Sustainability
Initial date of publication: March 2011
Geographic setting of case: China, United States
Access: Available to educational institutions by emailing firstname.lastname@example.org. Teaching note available to accredited faculty at business schools.
Overview: At the end of 2010, Jifan Gao, Trina Solar’s founder and chairman, wondered how his company could expand its presence in the United States market. In the previous five years, Trina, a company with manufacturing and headquarters in Changzhou, China, had managed to grow rapidly by selling photovoltaic (PV) modules in Europe. However, Trina lagged behind some of its Chinese rivals, such as Yingli and Suntech Power, in supplying modules to the United States. Gao had targeted the U.S. market in 2010, and Trina had increased its sales in the country during 2009. But other module makers were also expanding their presence in the United States. Trina had to decide how it was going to respond and how much it was willing to invest in its efforts to grow in the U.S.
Some module makers had taken a fairly direct route and had acquired leading U.S. solar developers. In September of 2010, the Japanese module maker Sharp had bought Recurrent Energies and its pipeline of projects. Before that, the world’s largest module maker, First Solar, had bought a large developer. However, other module makers had made a point of not pursuing this type of downstream integration, vowing not to compete with their customers.
Other module makers had opened manufacturing facilities in the United States to increase their visibility. In November of 2010, Chinese manufacturer Suntech Power opened a plant near Phoenix, Arizona. At the end of 2010, Japanese company Kyocera announced that it was building a solar module plant near San Diego, California. Sharp and Solarworld, manufacturers based outside the U.S., had long operated some manufacturing within the U.S. Despite having built a large integrated solar module facility in China, Trina wondered whether it should follow suit. If so, where in the U.S. should it locate its plant, and how large a facility should it build?
Another possibility was in further developing B2C channels to tap into the growing market of local contractors and do-it-yourselfers looking to add solar panels to their roofs. Trina had already partnered with three distributors of electrical equipment in the United States to reach the residential market. But were there other strategies the company should pursue to reach this market?
In general, Trina wanted to raise its visibility and build its brand in the United States. Solar module makers had been fairly anonymous, but the rapid expansion of the market had led many of the companies to seek new ways to differentiate themselves. For example, Yingli had bought a sponsorship of a German soccer (football) team and advertised during the World Cup. For its part, Trina had sponsored a Formula One racing car. But were there other branding strategies the company should consider with reference to the United States?
These strategic questions had to be answered in an environment with two major sources of uncertainty. First, there were considerable political risks. The U.S.-China trade relationship had sometimes been rocky, and the rapid rise of the Chinese solar industry had worried many U.S. interest groups. In addition, U.S. lawmakers were concerned with the overall trade imbalance between China and the United States and the relationship of the two countries’ currencies, creating risk for any company that paid its workers in renminbi but booked its sales in dollars.
Beside general political risks to trade between China and the U.S., there were the specifics of governmental incentives. The boom in solar development in Europe was the result of countries committed to reducing their carbon footprints and willing to provide generous feed-in tariffs to solar developers. On the other hand, there was less political will for carbon reduction in the United States. The U.S. federal government did extend tax credits to solar developers, and certain state governments had created additional incentives. The importance of these incentives meant that module makers had to track changes in legislation and adjust their plans accordingly.
The second source of uncertainty was the changing nature of the PV industry itself. At the beginning of 2011, many analysts warned that PV manufacturers had more capacity than demand and that solar modules were passing from a seller’s to a buyer’s market. At the same time, the oversupply was pushing prices down further so that “grid parity”—the point at which solar power could compete with conventional power sources from the grid without governmental incentives—seemed to be in the offing. The implications of grid parity to the solar industry were, as yet, not well understood.
Series: Yale School of Management