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Vestas Wind Systems

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VESTAS WIND SYSTEMS 2

Introduction

Vestas Wind Systems is a leading player in the wind energy generation industry. Founded

in 1898, the company has withstood the turbulent times of the industry and remained resilient in

providing clean energy solutions to its customers. Vestas Wind Systems prides itself as the only

global energy company that deals exclusively with wind energy. The company’s 110 years of

experience gives it an all-around expertise in the wind sector (Vestas Wind Systems, n.d.). The

primary business of the company is the development, manufacture, sale, and maintenance of

wind power plants. The company also dabbles in the training of personnel and collaborates with

customers to provide optimum solutions for the management of wind power plants.

Additionally, Vestas Wind Systems offers options for businesses for clients who are

interested in investing the wind energy industry. Towards this extent, the company provides

layouts for wind power plants and supplies solutions for every challenge the customer is likely to

face along the value chain of the wind power project (Vestas Wind Systems, n.d.). In spite of the

numerous setbacks the company has encountered along the way, Vestas Wind Systems remains

optimistic of the future and is confident it will continue to charter the way forward for the wind

energy industry as it has done for the past century.

Vision and Mission

Vestas Wind Systems strives to be the global leader in sustainable energy solutions. This

vision statement is backed by four proof points that the company has achieved to date. These

include: (i) lowest cost of energy solutions, (ii) preferred partner, (iii) leader in revenues and (iv)

Best-in-Class margins (Vestas Wind Systems, n.d.). This vision is guided by the company’s

mission statement, i.e., “Deliver best-in-class energy solutions for the benefit of Vestas’

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customer and the planet.” Vestas Wind Systems’ vision and mission statement center around the

company’s core values of accountability, collaboration, and simplicity (Vestas Wind Systems,

n.d.).

Background of the Organization

The origin of the Vestas Wind Systems can be traced back to Lem, Denmark when Hand

Smith Hansen got off the train and purchased the local blacksmith shop. Smith Hansen together

with his son Peder ran the company as a family business, dealing with the manufacturing of steel

products. After the Second World War, Peder established VEstjysk STaalteknik A/S (VESTAS)

together with his father and other colleagues. In the years to follow, the company expanded into

the manufacture of household appliances and later into heavy agricultural machinery. Vestas

began manufacturing wind turbines in 1979, and after an internal crisis in 1986, the company

decided to direct all its attention to wind energy. The other manufacturing branches of the group

were sold off, and Vestas Wind Systems A/S came into being.

Today, Vestas Wind Systems is the most massive wind turbine manufacturer in the world

and is still committed to ensuring that wind energy is the leading source of energy that will

power the future. Structurally, the company is organized into seven key pillars that embody the

operations and employees of the organization. These include Group Marketing, Communication

and Public Relations, People and Culture, Sales, Power Solutions, Finance, Manufacturing and

Sourcing and Service (Vestas WInd Systems, n.d.). Additionally, the company has a corporate

strategy office that ensures its operations are in line with its vision and mission statement. Each

of these critical pillars is headed by an Executive Vice President who reports to Andre Erik

Runevad, the Group President and CEO (Vestas WInd Systems, n.d.).

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Vestas Wind Systems is a true pioneer in the wind industry. The company continues to

assert its global presence by bringing wind energy solutions to every corner of the globe. Today,

the company has installed wind turbines in 76 countries on six continents, most of which are

emerging markets that had no prior investment in wind energy. The Lake Turkana Wind Park

Project in Kenya is a clear testament to Vestas’ ability to work anywhere on the globe. The 310

MW project is located in the remotest locale of Kenya, some 1200 km from the port of

Mombasa, yet the company managed to deliver the project ahead of schedule (Vestas Wind

Systems, n.d.). According to the Energy Business Review, Vestas is responsible for 82 GW wind

parks across the world, a clear indication that it is the most relied partner when it comes to wind

energy generation (2017).

Industry Analysis

The wind energy, as are many of the alternative energy industries, is a relatively young

industry with less than fifty years of existence. Companies in this industry are involved in the

design, manufacture, installation, and maintenance of wind turbines. These companies may also

offer auxiliary services as requested by the client. In comparison, the wind energy industry is

smaller to other energy-related industries, but it is the fastest growing registering an annual 25%

growth between 2002 and 2007 (Cision PR Newswire, 2016). The wind energy industry took

shape in 1979 when Danish firms began installing wind turbines in western Denmark. By the

mid-1980s, the demand for wind energy had increased, and the industry spilled over into other

countries with American energy firms taking a key interest. By the 1990s, major wind energy

firms had emerged in Germany, India, Spain, USA and Denmark (Cision PR Newswire, 2016).

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Porter’s Five Factor analysis can be used to examine and ascertain the state of the wind

energy industry. The framework analyzes a particular industry based on five key variables, i.e.,

bargaining power of buyers, bargaining power of suppliers, the threat of new entrants, the threat

of substitutes and the degree competitive rivalry within the industry (Ketchen & Short, 2002).

Threat of New Entrants

The threat of new entrants into the industry remains substantively high in spite of the

initial high capital requirements. Numerous barriers to entry characterize the industry, but this

does not put off interested investors from investing in the industry. Patents and trademarks, huge

economies of scale, the large size of existing firms coupled with their significant control on the

market are some of the barriers that new entrants into the industry are expected to face.

Interestingly, owing to the high ROI in this sector, most firms opt to invest in spite of the

numerous teething problems they are bound to encounter (Market Research Reports, 2016).

Additionally, like most alternative energy industries, the wind energy industry has recently

undergone break-even thus making it very attractive to new investors.

Threat of Substitutes

There are two ways through which substitutes in this industry can be analyzed. First, the

actual product that firms in this industry manufacture, i.e., wind turbine and secondly wind

energy itself. Hitherto, there are no close substitutes to wind turbines, however; wind energy is

under noteworthy threat (Market Research Reports, 2016). The competing substitutes to wind

energy are other alternative sources of energy such as solar power, nuclear energy, and fuel cell

energy. The developments being made in these alternative sources of energy pose a significant

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threat to the profitability and existence of the wind energy in years to come (Market Research

Reports, 2016).

Bargaining Power of Buyers

The absence of close substitutes to wind turbines reduces the bargaining power of buyers

as they have no other option but to buy wind turbines if they want to proceed with the generation

of wind energy. However, buyers still maintain some considerable bargaining power as they can

opt to use other alternative sources of energy. For example, customers can shift to solar if the

price of wind turbines remains higher than that of solar panels. Therefore, buyers maintain a

medium bargaining power over the firms in the industry.

Bargaining Power of Suppliers

The bargaining power of suppliers within the sector is low. Some of the raw materials

used by firms in this industry, e.g., materials used to manufacture wind turbines can be easily

sourced from other suppliers. Technical talent is also sought after in this industry. Therefore,

individuals with expertise in the manufacturing of wind turbines maintain significant bargaining

power. To reduce the bargaining power of suppliers and other sources of inputs, firms in the

wind turbine industry hardly outsource the processes along their value chain. For example,

Vestas Wind Systems has an in-house logistics department that oversees the transport of wind

turbines and other material from their factories to the wind park sites. Eliminating suppliers

eliminates their bargaining power altogether.

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Competitive Rivalry

The degree of competitive rivalry within the industry is very high. Although Vestas Wind

Systems records the highest sales revenue, it still faces significant competition from other Danish

firms and major global players such as General Electric and Xianjiang Goldwind Science and

Technology. As a result of the stiff competition, Vestas Wind Systems employs the cost

leadership strategy in a bid to maintain its market share and level of sales. Vestas is not only the

market leader when it comes to sales but also reduced costs.

Competitive Analysis

As more firms make their way into the wind-turbine manufacturing industry, so does the

level of competition go higher. According to the Global World Energy Council (GWEC), the

numbers of firms in the wind business has tripled in the past decade. By the end of 2016, 486.6

GW of wind energy had been installed. GWEC forecasts that this figure will shoot to 817GW by

2021(Energy Business Review, 2017). This forecast will result in more firms streaming into the

industry and thereby raising the level of competition even further.

Today, however, Vestas Wind Systems remains ahead of the pack. Vestas had a total of

8.7 GW of turbine capacity installed by the end of 2016. The company maintains a diverse

portfolio of clients in over 40 countries across the globe with a service order backlog of EUR

10.7 billion. Cumulatively, Vestas has an installed turbine capacity of 82GW with manufacturing

facilities in the Americas, Asia, and Europe. Vestas shows no signs of slowing down as it signed

a 1GW contract with Norway to install turbines in the Fosen/Hitra project (Energy Business

Review, 2017).

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GE Wind Energy, a subsidiary of General Electric, and Xianjiang Goldwind Science and

Technology remain Vestas’ closest competitors. GE installed 6.5 GW in 2016 while Xianjiang

installed 6.4 GW in the same period. Like Vestas, GE depends on global orders from numerous

countries while Xianjiang only sources orders within the confines of its domicile nation, China.

Last year, Goldwind secured 9 GW of orders in China representing 30% of the total market

share. Other significant competitors include Gamesa (Spain), Siemens (Germany), Enercon

GmbH (Germany), The Nordex Group (Spain) and Goudian United Power Technology (China)

(Energy Business Review, 2017).

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References

Cision PR Newswire. (2016). Global Wind Turbine Industry - Statistics, Small Wind Turbine

Market Analysis, Value Chain Analysis & Forecast 2001-2020. Prnewswire.com.

Retrieved from https://www.prnewswire.com/news-releases/global-wind-turbine-

industry--statistics-small-wind-turbine-market-analysis-value-chain-analysis--forecast-

2001-2020-300236731.html

Energy Business Review. (2017). Top Wind Turbine Companies. wind.energy-business-

review.com. Retrieved from http://wind.energy-business-review.com/news/top-wind-

turbine-companies-5864985

Ketchen, D., & Short, J. (2002). Mastering Strategic Management.

Market Research Reports. (2016). Worldwide Market Analysis of the Offshore Wind Energy.

Offshore Wind Industry. Retrieved from

http://www.offshorewindindustry.com/news/worldwide-market-analysis-offshore-wind

Vestas WInd Systems. Pioneering the Industry. Vestas.com. Retrieved from

https://www.vestas.com/en/about/pioneering-the-industry#!

Vestas WInd Systems. Corporate Strategy. Vestas.com. Retrieved from

https://www.vestas.com/en/about/profile#!corporate-strategy

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