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Globalization drivers for renewable energies referring to electricity production of E.ON

A competitive analysis in comparison with RWE

Master's Thesis 2009 132 Pages

Politics - International Politics - Topic: Globalization, Political Economics

Excerpt

Table of Contents

Executive summary

1. Introduction and procedure
1.1. Research objective
1.2. Problem statement
1.3. Relevance of the topic
1.4. Structure of the work

2. Theoretical steps towards a global strategy
2.1. Terms and definitions
2.1.1. Renewable and non renewable energies
2.1.2. Globalization and globalization drivers
2.1.3. “International, multinational, multilocal and global”
2.2. General strategic theories
2.2.1. Strategy and strategic management
2.2.2. The Ansoff-Matrix
2.2.3. Porter’s “Five Forces”
2.3. Different theoretical approaches of globalization drivers
2.4. Globalization drivers and integrated conceptual frameworks of global strategy
2.4.1. A conceptual framework of Zou and Cavusgil
2.4.2. Strategic orientations for international companies by Macharzina and Wolf
2.4.3. The framework of Yip’s theory of global strategy: An introduction
2.5. Theory of globalization drivers based on Yip
2.5.1. Market globalization drivers
2.5.2. Cost globalization drivers
2.5.3. Government globalization drivers
2.5.4. Competitive globalization drivers
2.5.5. Other globalization drivers

3. E.ON and RWE and their situations referring to the electricity market and renewable energies in it
3.1. Introduction of the companies E.ON and RWE
3.1.1. An introduction of E.ON
3.1.2. An introduction of RWE
3.2. The electricity market and renewable energies in it
3.2.1. The energy market in general
3.2.2. The electricity market
3.2.2.1. The electricity market in Germany
3.2.2.2. The electricity market in Europe
3.2.3. Application of Porters’ “Five Forces” for the electricity market and renewable energies in it
3.2.4. Renewable energies and their development for electricity production
3.2.5. Application of the Ansoff-Matrix for electric power generation and renewables within it

4. Internationalization and globalization for renewable energies in the electricity market
4.1. Application of globalization drivers based on Yip onto the market of renewable energies for electricity production
4.1.1. Market globalization drivers
4.1.2. Cost globalization drivers
4.1.3. Government globalization drivers
4.1.4. Competitive globalization drivers
4.1.5. Other globalization drivers
4.1.6. Summarization of the globalization drivers
4.2. Global strategy levers and internationalizing and globalization strategies referring renewable energies for electricity production

5. Critical analysis of the international and global strategy of E.ON referring to renewable energies for electricity production in comparison with RWE
5.1. International activities of E.ON referring to renewable energies
5.2. International activities of RWE referring to renewable energies
5.3. Comparison and critical analysis of the international and global strategies of E.ON and RWE referring to renewable energies

6. Conclusion and outlook
6.1. General conclusions
6.2. A summary of critical aspects
6.3. Recommendations and outlook for the future

Appendix

Bibliography

List of Figures

Figure 1: Scheme of the strategic management process

Figure 2: Scheme of Porter’s Five Forces

Figure 3: Scheme of globalization drivers by Lessard

Figure 4: A conceptual framework of Zou and Cavusgil

Figure 5: A framework of Marcharzina and Wolf

Figure 6: A framework for global strategy by Yip

Figure 7: Industry Globalization Potential by Yip

Figure 8: Globalization triangle by Yip

Figure 9: Components of a Total Global Strategy

Figure 10: Types of customer by Yip

Figure 11: Development of the world population and global primary energy consumption

Figure 12: World power production in TWh from 1990 to 2006

Figure 13: Status of the worldwide liberalization of the power markets

Figure 14: Interconnection capacity (NTC) in relation to installed generation capacity 2007

Figure 15: Import dependence of the EU referring energy sources

Figure 16: The physical potential of renewable energies

Figure 17: Sources and possibilities for the use of renewable energies

Figure 18: Share of renewable energy sources in global electricity generation in 2005

Figure 19: Electricity generation from renewable energy sources in various regions in 2005

Figure 20: E.ON’s installed renewables capacity as of February 2009 (MW)**

Figure 21: International activities of RWE Innogy GmbH

Figure 22: The international focus of RWE referring renewables

Figure A1: Effect on the internet on business globalization potential

Figure A2: Energy supplier in Germany 2000 and 2002: Mergers and acquisition

Figure A3: Power market in Europe: Not everywhere is competition

Figure A4: Electricity prices - industrial users - Euro per kWh - 2007*

Figure A5: EU Electricity Price 2004-2007 (Household Users)* - € per KWh

Figure A6: Target countries for JI/ CDM business and examples of projects in 2008 of E.ON

List of Tables

Table 1: First dissociation of the term “Globalization”

Table 2: The biggest German electricity supplier 2006 (by power delivery to end consumer in Bill. kWh)

Table 3: Gross power production by energy sources in Germany

Table A1: Prefixes

Table A2: Energy units

Table A3: Global strategy levers for globalization benefits referring to renewables

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Executive summary

Renewable energies have become more and more important as energy sources in the recent decades and they will become even more significant further on: They reveal as the main hope for the worldwide energy supply in the future. The presented Master Thesis concentrates on their importance for electricity production in the strategy of E.ON in consideration of special comparison to RWE. Both companies are the greatest energy suppliers in Germany. The special focus of the work lies on the important as- pects of internationalization and globalization. The aim is to show how the globaliza- tion drivers affect on renewable energies for electricity production and what that means to the strategy of E.ON and RWE.

The world energy markets have substantially contributed to economic globalization, at the head by the oil market. Over all the markets for the fossil energy sources oil, natural gas and coal will be characterized by internationalization and globalization further on.[1] The electricity market and the renewables in it have not reached that level of interna- tionalization and globalization. But it can be shown that the internationalizing and globalizing potential for the power industry also in view of renewables is already much more developed as generally expected and that all signs are pointing to a further power- ful trend.

Potentials for using a global strategy in this context are already visible and strongly increasing. As a result E.ON and RWE should develop their strategies towards a higher international and global level. In view of Europe that is obvious for both and already powerfully implemented. The European home market is most important for them, but not enough. A further international and global strategic path should be aimed for re- newables.

In the middle and long run renewable energy sources will dominate the global energy markets, especially for power production. The benefits for a global strategy in this context will then be indisputable. The question is not if, but rather how fast the strategic progress towards a global strategy the ambitious energy companies has to be implemented in view of renewables. The time is running and E.ON as well RWE should not lose too much time to “go global”.

1. Introduction and procedure

1.1. Research objective

Renewable energies have become more and more important as energy sources in the recent decades and they will become even more significant further on: They reveal as the main hope for the worldwide energy supply in the future. It is the aim of this work to lay the attention on this issue and to apply scientific theories to work out practical recommendations for energy companies. As it will be worked out, the nature of the problem and the actual development is the aspect of internationalization and globaliza- tion, like it is for various economic issues. The special focus of the presented work lies on the globalization drivers for renewable energies referring to electricity production. In the authors’ view it is very interesting to combine these two up-to-date aspects and to let them flow into practical advices.

1.2. Problem statement

Renewable energies become more and more important as energy sources in general and particularly for power supply companies. That is based on several main reasons:[2]

- Limitation of the actual most important energy resources oil, gas and coal com- bined with international conflicts around these resources.
- High and further rising prices of raw materials and fossil energy sources in the middle and long run.
- The climate change and its political implications which aim at the reduction of CO2 emission. Over all sustainability will or should probably be one of the main principle of global politics in the future. The tightening of political regulations will therefore increase. Furthermore will the support for renewable increase further on.
- Efficient energy alternatives (e.g. nuclear fusion) and techniques for carbon cap- ture and storage are not visible in the near future.
- For many those responsible the revitalisation and reinforcement of nuclear power seems to be a good strategy. But besides the political and practical solutions for that, even in Germany, seems to be very restricted, this would also not roughly solve the whole global energy problems in the future.
- Renewables are globally available, could enhance the energy supply security (in contrast to current energy dependences) and has low environmental impacts.
- The consumer behaviour will also change more towards climate friendly products and energy resources.

In the consequence renewable energies reveals often as the main hope for the worldwide energy supply in the future.[3] 40 % of the worldwide CO2 emission derives from the production of electricity. Until 2030 the global electric power consumption will be twice as high as today. BP e.g. expects the global potential market for electric power of alternative energy sources up to 230 GW.[4]

Referring to these facts, the presented Master Thesis concentrates on the importance of renewable energy sources for electricity production in the strategy of E.ON in con- sideration of the special comparison to RWE. Both companies are the greatest energy suppliers in Germany. The special focus of the work lies on the important aspects of internationalization and globalization. The aim is to show how the globalization drivers affect on renewable energies for electricity production and what that means to the strat- egy of E.ON and RWE. A competitive analysis wants to show how E.ON is prepared to the globalisation processes in this area, which advantages and disadvantages the com- pany has in this field compared to RWE and what conclusions and recommendations could be made for the strategy according to the research object.

1.3. Relevance of the topic

E.ON and RWE put both great emphasize on renewable energy: E.ON Climate & Re- newables started in January 2008 and is responsible for the Group’s global renewables and climate protection activities. E.ON declares that they are dedicated to increase sustainably the share of renewable generation as part of the Group’s portfolio. E.ON Climate & Renewables is investing at least EUR 6 billion to 2010 in renewable genera- tion and climate protection projects and will play a leading role in the development of the renewables industry worldwide.[5] RWE has also just concentrated its efforts in renewable energies in the new corporation “RWE Innogy”, which was established in February 2008. RWE is willing to invest one billion Euros in renewable energy forms each year.[6]

In collaboration with E.ON and RWE the International School of Management has just established a new MBA course on "Energy Management". That shows how important this issue is for both companies. Furthermore it underlines the aspect, that the today’s energy industry is characterized more and more by the internationalisation of markets because of the increasingly scarce resources.[7]

1.4. Structure of the work

In chapter two will first be presented the relevant theoretical backgrounds for the tar- geted analysis. After clarifying the relevant terms and definitions, general strategic theories for a broad strategic orientation of companies will be expounded. That includes an overview of the strategic management process, the Ansoff-Matrix and Porter’s model of the “Five Forces for competition”. Then different theoretical approaches to- wards globalization drives will introduce the most important theoretical aspects in this work. That leads to more comprehensive and integrated views of globalization drivers and global strategies from Zou and Cavusgil, Macharzina and Wolf and from Yip. The last subchapter of the theory base is focussed on the concepts of globalization drivers based on Yip. His analysis tools are most comprehensive and well advanced in the opinion of the author. Also they are well applicable for the present analysis.

In the third chapter E.ON and RWE will be introduced shortly as main objects of the work. Then general analysis of the relevant electricity market and renewables in it will be supplied. That includes also applications of the Ansoff-Matrix and Porter’s “Five Forces” for the electricity market and renewables within it. In chapter four thereupon the analysis tools referring globalization drivers based on Yip will be applied onto the market of renewable energies for power production. At the end of this chapter the pre- sented aspects will be summarized and possible global strategy levers as well as de- rived proposals for international and global strategies will be offered.

Chapter five deals with the critical analysis of current international and global strategies of E.ON and RWE referring to renewable energies for power production and compares them censoriously.

The last chapter provides finally the summarizing conclusions. Moreover it summarizes the critical aspects of the analysis and gives the companies recommendations for their strategies as well as an outlook for the future.

2. Theoretical steps towards a global strategy

2.1.Terms and definitions

2.1.1. Renewable and non renewable energies

Renewable energies are natural sources of energies, which are more or less inexhaustible by human scales. The most known are solar, wind, water, biomass and geothermal energies. Non renewable energy sources are coal, oil, natural gas, and uranium. For them the term “conventional” energy source is used as synonym in this context, although also renewables have been used since a long time.[8]

In this work municipal waste is not counted among biomass energy, although it is often used together with agriculture waste for power production by burning.[9] The difference is that municipal waste is not natural regrowing. Of course biomass energy has also to be applied on a sustainable level, which means to avoid using more natural resources than are able to regrow. This overexploitation often still occurs in developing countries where biomass is an important traditional energy form. It has then to be changed by “renewable” means.[10] Analogously this is relevant if biomass energy would displace agriculture needed land or rainforest, which also recently occurred.[11]

2.1.2. Globalization and globalization drivers

Since the 1990s the term “globalization” has become a key word in the public discus- sion. In general it means a reduction of market segmentations and an increasing inter- dependence of national markets.[12] Globalization includes the processes of integration or at least the closer approach of all the countries in the world. Apart from the political, cultural, social and ecological aspects there are also economical ones, which mean the cross-borders exchange of goods, services and capital etc. The latter includes all for- eign economic aspects, interdependences and reciprocal investments.[13]

Already in the early eighties e.g. Theodore Levitt described the globalization of mar- kets. Over all he points out, that the worldwide needs and desires become more and more homogenized. Therefore he claimed a need for national and multinational compa- nies to “go global”, by means of applying marketing imagination in the direction of “developing advanced, functional, reliable standardized products, at the right price, on a global scale”.[14]

In the 1980s and 1990s many companies asked themselves if they should globalize. Now the companies are more assuming to globalize unless there are good reasons not to do so. The question now is therefore how global the concrete industry is and how global the business strategy should be according to this.[15]

For the process of globalization there are reasons and catalysts, i.e. circumstances which enforce the globalization.[16] The more these circumstances form global market conditions for a special industry the more companies in it have to ensure a global strat- egy or at least to think about it. These underlying circumstances, which form the po- tential of a global strategy, can be called as globalization drives according to Yip.[17] He was one of the first authors who has occupied himself with this issue and has pointed out them clearly and transparently. Therefore his approach is presented more closely in this assignment and is applied for the analysis of renewable energies for electricity pro- duction. Before that the other approaches to globalization drivers and the whole theo- retical background of the analysis are presented in the next chapters.

2.1.3. “International, multinational, multilocal and global”

In order to separate the term globalization from other often used terms in the context, Stöß differs between international, multinational and global companies or, referring to the processes, between internationalization, multinationalization and globalization.[18]

International orientated companies consider therefore the foreign transactions as addi- tional support and securing for the home business. An international strategy aims over all a transfer of the products and processes designed for the home market of the parent company into foreign markets, without great modifications. Multinational companies otherwise focus on the particular circumstances of the different national markets. The aim is then the highest local acceptance of the own products. Often this is reached by an own value-added chain in each country. There are few efforts for using advantages of standardization or synergies of all country businesses. The latter is aimed by a globalization strategy.[19] Stöß summarizes these aspects in a chart[20]

Table 1: First dissociation of the term “Globalization”

Abbildung in dieser Leseprobe nicht enthalten

Source: Stöß (2007), p. 18.

It is a general overview of typologisation at the beginning. These classifications occur quite similar in many publications. E.g. Steinmann and Schreyögg[21] use the term internationalization strategy also referring to companies, which search for new foreign markets. In this context they emphasize the special analysis of the selected countries (“special environmental analysis”) and the different forms of country entries (e.g. ex- port, licensing, franchising, direct investments and acquisitions).[22] For companies which are actually international active the authors propose multinational strategies which include the two alternatives: Global or fragmented strategies. Global strategy means for them to provide the different national markets with unique products and competition profiles, i.e. an “unique global strategy”. That does not include a global integrated value added chain here, in contrast to e.g. Yip.[23] For Steinmann and Schreyögg a fragmented strategy treats at least each competitive situation separately and is nationally adjusted, also called “multilocal”. That may lead to a portfolio of dif- ferent competitive strategies.[24] Other authors, like Marcharzina and Wolf as well as Yip, use also these types of orientation, but in a different[25] and in the opinion of the author also more comprehensively and sophisticatedly way. This will be explained later on in the chapters “frameworks of a global strategy”.

In sum it has to be said that the terms globalization in combination with globalization strategy are not used in a consistent manner in literature.[26] Therefore the terminology of Yip is presented at least. His theory and terminology is primarily used for the analysis in this work and he has clear distinctions:

Yip differs between the terms international, multilocal and global. They are not synonyms for him. Moreover he wants to address different types and levels of strategy. A company which act globally doesn’t need to have a global strategy. A global firm must not be everywhere in the world, but it has all options to go anywhere if reasonable. Also it is able to use any assets and accesses to resources and to intend maximum income on a global base. In this context just using the “triad” (North America, Western Europe and Japan) seems no longer sufficient for him.[27]

Yip uses the word “worldwide” as a neutral term. “International” does mean to him to do business outside the home country. As well as “global”, the term “multilocal” refers to a category of worldwide strategy for Yip: It means to compete in each country or region with separated and independent approaches. In contrast to that a global strategy is intending an integrated solution. “Multilocal” is used instead of “multinational” be- cause the latter is more associated with the kind of firms, which are present in many nations. But a multinational company can realize different worldwide strategies, e.g. a multilocal or a global one, as presented here.[28] In this context Yip also distance himself from the term “transnational”, which is also used for “interaction” or “blocked global” strategies.[29] The latter term will be explained later on. According to Yip it will be treated also as a global strategy in this work.

“Region” and “regional” refer to areas of several countries, which normally build all or the majority of a continent. The word “country” is used to address single countries as well as groups of little and coherent ones. They could be managed as one country. A “worldwide business” has noteworthy activities in a number of continents and it produces and also sells in many countries, if not in several continents. Just exporting defines not a worldwide business in Yip’s view.[30]

2.2.General strategic theories

2.2.1. Strategy and strategic management

A strategy in the common meaning of strategic management can be seen in decisions, which are made from a subordinated perspective and which determine the basic orien- tation of a company. Also they determine the position of the company in the market and the arrangement of the resources in order to get advantages over the competitors and at least to ensure the long-term success of the company.[31] The end of the last sen- tence is the most important part and could be a short definition of strategy.[32] The long- term perspective of success is therefore mentioned in various definitions of strategies.[33] The long-term success is very important for the aim of this analysis, because it is highly relevant referring to renewable energies, which become more and more important in the long run. To summarize all the mentioned explanation in this context, also the “five P’s of Strategy” can be used: Plan, Ploy, Pattern, Position and Perspective.[34]

Strategy and strategic management are often used in the same context. Strategic management is therefore an information processing by which the potentials of the company is adjusted to the requirements of the company environment in order to reach a long term success by a successful strategy.[35]

All strategic planning are based on selection processes which generally consist of two main pillars[36]:

- Analysis of the external environment
- Analysis of the internal possibilities and boundaries/ strengths and weaknesses

The whole strategic management process is subdivided in five units: Analysis of the environment, analysis of the company, strategic options, strategic choice and strategic programmes as shown in the following graphic:

Figure 1: Scheme of the strategic management process[37]

Abbildung in dieser Leseprobe nicht enthalten

Source: Steinmann/ Schreyögg (2005), p. 172

For the environmental analysis there is always also the analysis of the specific branch or industry of the regarding company important. In this context Porter has provided early essential strategic perspectives. Central approaches for him are the “Five Forces”, presented in the chapter 2.2.3.

2.2.2. The Ansoff-Matrix

The main assumption for the market of renewable energies for electricity production is its growing tendency, as it will be shown in this work. In combination with a growth strategy the product/market-matrix from Ansoff could be used. It’s a general orientation for the action field of a company and helpful for a first approach. Following strategies are mentioned in this context:[38]

- Market penetration: Strategy to raise the sales in existing markets by a better marketing and distribution (e.g. by an increasing benefit rate for the customers, attracting of costumers of rivals, acquisition of new costumers which don’t have the one product)
- Product development: To introduce new products in involved markets (e.g. by developing new product features or varieties of quality)
- Market development: Strategy to search new markets for the existing products program (e.g. by a greater geographic scope or by attracting of new segments
- Diversification: New products for new markets (i.e. a combination of market and product development)

All these possibilities are relevant for general strategic orientations and referring to renewable energies for E.ON and RWE.

2.2.3. Porter’s “Five Forces”

As mentioned above the environment analysis concludes also the near surroundings of the focussed industry. In this context Porter has presented his approach of the “Five forces of competition”. Its aim is an analysis of the structure of a branch. The strength of these five competitive forces determines the intensity of competition and more specifically the average rate of return of the companies within an industry.[39]

The forces could be explained as follows:[40]

- Threat of entry by new competitors: It depends from the heights of the entry barriers. E.g. there are: Economies of scales, company’s owned product differ- ences, brand identity, switching costs, need of capital, absolute cost advantages etc.
- Strength/ bargaining power of suppliers: Suppliers could threat the industry with increasing prices or decreasing quality. Their power is among others de- pending on: Differences of the inputs, switching cost of suppliers and compa- nies in the industry, substitute inputs, supplier’s concentration, costs in relation to the whole revenues in the branch, relevance of the volume of orders for suppliers, influence of the inputs on costs and differentiation etc.
- Strength/ bargaining power of buyers: Buyers are able to threat with boycott of demand, especially if they are concentrated, the relevant products cover a high share of the total costs of the buyers or if products are standardised. The purchasing volume is important. Relevant is also the switching costs of buyers in comparison to companies.
- The threat of substitute products and services: If substitutes exist, the price relation and the product differences are relevant. Further determinants are e.g. the cost-benefit relation, the latent affinity of costumers to switch, the cost of switching, price sensibilities and brand identities.
- Rivalry among existing companies in the industry: The rivalry among com- petitors is the central driver in this model. It derives from the intensity of the other four forces. Determinants are in this context the growth of the industry, concentration and balances, overcapacities, product differences, brand identi- ties, switching costs, strategic interests, barriers of exists, heterogeneities of the competitors etc.

The model can be best shown in a graphic:

Figure 2: Scheme of Porter’s Five Forces[41]

Abbildung in dieser Leseprobe nicht enthalten

The instrument of the “Five Forces” is a good approach for the first analysis of an industry and its constitution. The globalization drivers are related to these competitive forces by Porter, but they are different and work at a more superior and exponentiated level[42], which will be discussed later on.

2.3.Different theoretical approaches of globalization drivers

Although the globalization drivers yet have not been identified completely, the reasons for global processes lie in general in the increasing convergence of the macro-economic and of the technological factors as well as the characterization of the customer needs in each national market:[43]

- The convergence of the markets leads to more international spanned economic zones by the cutback of trade barriers or of interventions of states as well as by the deregulation and privatisation of national parts of markets. Furthermore new markets in Eastern Europe and in the emerging countries are open up. One im- portant result of the economical convergence is the strongly intensifying of the worldwide competition which is strengthened by the mediatization of the mar- kets.
- Convergence of the technology as well as adequate proceedings in transport technologies makes the global communication and the transport of goods and persons easier.
- The third essential globalization driver is the worldwide visible convergence of the customer needs in many demand sectors. Reasons are better education, more buying power as well as the increasing international experiences of the customers by journeys and electronic media.

Other authors enumerate reasons in the same direction, e.g. Horst Siebert sees the following reasons of globalization:[44]

- Distinctly fallen costs for transport and communication in the recent decades
- A “revolution” in the information technology
- Reduction of political tensions (e.g. the Cold War, apartheid in South Africa)
- Radical change in former centrally planned economies of Central and Eastern Europe an the opening of China
- Changed strategies of most developing and newly industrializing countries for developing and foreign trade with the result of a higher openness.
- National regulations have increasingly been reviewed, apart from measures which explicitly restricted trade.

Kutschker und Schmid point out the drivers of globalization similarly as follows:[45]

- Circumstances: Deregulation, cooperation/ integration, opening of former cen- trally planned economies, technological progress etc.
- Demand factors: Homogenization of demand, saturated national markets, de- mand of new emerging markets etc.
- Competitive factors: Existence of global competitors, parallel/ imitation behaviour, first mover advantages etc.

Donald R. Lessard presents an own explanation of globalization drivers. He slightly modifies those of Yip into the following categories: market factors, scale factors, com- parative advantage and regulatory factors.[46] They can be combined and applied as shown in the following graphic, which analyses the factors for the example industries commercial aircraft and soft drinks:[47]

The commercial aircraft industry is global in the sense of sales with great market integration and very strong scale economies as well as knowledge advertising. For the soft drink industry all dimensions are much lower.[48]

Figure 3: Scheme of globalization drivers by Lessard[49]

Abbildung in dieser Leseprobe nicht enthalten

Source: Lessard (2003), p. 85.

Although many authors emphasize the trend of globalization and global strategies[50], there are also critical voices referring to the understanding of globalization. E. g. Alan M. Rugman denies its development in terms of a single world market with free trade. Moreover he points out that national government strongly regulate most service sectors. For him the extent of regulation is not decreasing. Rugman suggests that businesses should think local and act regional instead of think global. Multinational enterprises would act within triad markets and access triad markets.[51]

A more differentiated and sophisticated view is in this context that e.g. by Macharzina and Wolf. They differ between globalization drivers and localisation drivers. The comprehensive list of globalization drivers by Macharzina and Wolf is a good summarization of many points mentioned before:[52]

- Reduction of tariff barriers
- Liberalization of the capital markets
- The increasing enforcement internationally valid specification and standards (e.g. CIM and CEN)
- The advancing homogenization of tastes of the customers accompanied by a simultaneous fragmentation of the markets into special buyer segments
- Decreasing transport costs
- Tendentially increasing expenditures for research and developments accompanied by a shortened time for product life cycles
- Economic advantages of mass production are becoming more and more important (e.g. economies of scales)

These worldwide trends offer chances for the companies to provide their products and services all around the world in an unique and standardized form. The performance thereby has to be adjusted to the needs of the world market just from the beginning. So it is obvious that this chance also becomes more and more to a necessity for a comprehensive transnational company strategy.[53]

In contrast to the globalization drivers Marcharzina and Wolf present advantages and necessities for local adjustments, which they call localization drivers:[54]

- Non tariff barriers are substituting duties and charges.
- Transport costs are still blockading globalization, although they are sinking gener- ally.[55]
- Contrary to the globalization trend there are product needs of the customer which differ strongly from the global product.
- Because of established distribution channels there are still great barriers for market entries, e.g. for the food or the publishing industries.

Furthermore it has to be pointed out that there are often resistance or backlash in many countries against globalization and multinational companies, because people feel threatened by the effects of open markets and global convergence. That has to be seri- ously considered for potential global strategies and performances in foreign countries. Companies have to think about the local implications of their strategies to the circum- stances in the countries (economic, social, culture etc.) and about their public rela- tions.[56]

According to these contradicting factors the strategy building of international compa- nies stands between the poles of mainly economic motivated trends of the advantages of globalization and the necessities of local adjustments.[57] Marchazina and Wolf con- clude therefore consequences for the international strategy, which are presented in the next chapter.

Yip’s version of the globalization drivers (market, cost, competition and government) - which is in the centre of attention in this work - summarizes all of the points presented above, in a similar differentiated manner: He argues that the more globalization drivers are obvious and effective for an industry the more a global strategy is needed for a company in it. He also sees benefits and drawbacks respectively costs of a global strat- egy. Furthermore he suggests that as well only parts of a strategy could be globalized referring to global strategy levers. This decision has to be made after a systematic analysis of the relevant globalization drivers,[58] which is also the main aim of the pre- sent work.

That leads to more comprehensive and integrated views of globalization drivers and global strategies from Marcharzina and Wolf, Zou and Cavusgil and from Yip, which are presented more detailed in the next chapter.

2.4.Globalization drivers and integrated conceptual frameworks of global strategy

2.4.1. A conceptual framework of Zou and Cavusgil

All strategy planning are based on selecting processes, which are set up on two main factors: Analysis of the external environment and the analysis of the internal strength and weaknesses of a company. In total, the strategic management process contains of five steps: External analysis, company analysis, strategic options, strategic choice and strategic programmes.[59]

Hence the globalization drivers could be seen as relevant external circumstances which affect the external analysis within strategy processes. In this context the global strategic process described as follows forms an integrated conceptual framework for the analysis of the globalization drivers for renewable energies referring electricity production.[60]

Figure 4: A conceptual framework of Zou and Cavusgil[61]

Abbildung in dieser Leseprobe nicht enthalten

Source: Zou/ Cavusgil (1996), p. 61.

In this conceptual framework of Zou and Cavusgil, a global strategy integrate Porter’s coordination dimension of 1986 and all five dimensions discussed by Yip in his earlier work in 1989. The framework is based on the two main propositions derived from the industrial organization-based theory and the resource-based theory.[62]

That means[63]

- A global strategy is a response of organizations to the external industry globaliza- tion drivers
- Internal organizational factors form an organization’s ability to prepare a global strategy

2.4.2. Strategic orientations for international companies by Macharzina and Wolf

As mentioned before the strategy building of international companies stands between the poles of mainly economic motivated trends of the advantages of globalization and the necessities of local adjustments. Marchazina and Wolf present approaches of strategic orientations according to these contradicting factors as follows.[64]

Figure 5: A framework of Marcharzina and Wolf[65]

Abbildung in dieser Leseprobe nicht enthalten

Source: Macharzina/ Wolf (2008), p. 960.

The typologisations of Macharzina and Wolf remind of Stöß’s terminology presented in the first chapter and occur in similar forms in other publications, as already mentioned.[66] It is therefore presented shortly:

International industries are supposed to have no great globalization potential and there are low necessities for localizations. There is no homogenous world market. Rather there are regions with great differences of the customer needs. The best strategy is in this context is to transfer successful products and services of the home markets to similar markets in the world without great adjustments. According to this a “selection strategy” is needed and the approach of international companies is more ethnocentric. Despite of liberalization trends Marcharzina and Wolf claim the energy supplying industry as belonging to the international category.[67]

On the other hand it can be said, that the more the energy branch is connected and lib- eralized in the world the more that is valid for renewable energy. Otherwise renewable energies could be a globalization catalyser for the whole energy branch. That will be analysed later on.

For multilocal industries[68] the advantages of globalization are low. On the other hand the products and services have to be strongly adjusted to the different national markets. Often this is reached by complete value added chains in each country. Because of the national adequate form of market behaviour the referring strategy is called single market or multinational strategy.[69]

Global strategy (integration strategy) means in this context a tendency for standardization and a worldwide integration of all activities, over all of the production and the product design. That may also include an integration of specialized value added activities of different national company units in the world, centrally controlled by the headquarter. Only for the strong customer-orientated functions (e.g. consulting, service, pricing etc.) the frames are less determined and more adjusted to the local needs. Examples are the aircraft or the automobile industry.[70]

“Blocked global” businesses do have globalization benefits but a profound standardi- zation isn’t possible in this context, because a high degree of local adjustment is needed. Here the authors recommend a dual strategy: A spreading of sales as in the cases of integrated approaches, but with less product standardization. In addition coun- try bases for fulfilling the local necessities have to set up. Single function units may then be standardized as far as possible. Financial or R&D units could be standardized more intensively combined with globalization benefits without failing in local acquire- ments.[71] In this work these strategies will be treated also as global ones according to Yip.

Macharzina and Wolf discover also differences in the strategic international orientation of German and other European countries and those of Japan or the U.S., as presented in the graphic. German companies are going international more successively, whereas Japanese of singe U.S. companies are more straightforward toward a global or blocked global strategy.[72]

2.4.3. The framework of Yip’s theory of global strategy: An intro- duction

Yip has also presents a framework which is systematically similar to that of Zou and Cavusgil and which uses similar paths of international and global strategic directions like Macharzina and Wolf. The framework of Yip is used in this work, because it is comprehensive and well advanced and in the opinion of the author. It combines all the aspects mentioned before and provides proposals for practical steps towards interna- tional and global strategies. Therefore Yip’s theory is well applicable for the analysis of the globalization drivers of renewable energies and derived consequences for E.ON and RWE.

The external industry conditions or the economics of the business affects the industry globalization drivers (underlying market, costs and other industry conditions), which form the potential for a worldwide company to benefit from a global strategy. The latter is also determined from the (internal) resources of the business or the parent company. To reach the global strategic benefits, a worldwide business has to use its global strat- egy levers, for example by using globally standardized products or using global mar- keting. How well the benefits can be reached is depending on the organization’s ability to implement a global strategy.[73]

Figure 6: A framework for global strategy by Yip[74]

Abbildung in dieser Leseprobe nicht enthalten

Source: Yip (2003), p. 6.

Yip mentions in particular four groups of industrial globalization drivers: Market, cost, government and competitive. They form the conditions which affect the potential and need for using a global strategy in competition. A worldwide business principally can’t manipulate them. But these factors differentiate between the sources of the drivers which help to identify and handle them. The globalization potential is externally determined by these drivers.[75] Yip also mentions others drivers, e.g. revolution in IT, globalization of financial markets and improvements in business travels.[76]

Market globalization drivers hinge on the customer’s behaviour, the constitution of distribution channels and the characteristic of the marketing of the business. Cost driv- ers are characterised of their economics. Government globalization drivers are set by the rules of national governments. Competitive drivers are depending on the behaviour of the competitors. Each category of drivers is different for each business. As well they can change over time. So the globalization potential varies between industries. If a common group of changes occur which raise the globalization potential of many business, managers should have a greater interest for a global strategy.[77] The globalization drivers are explained more in detail in the next chapters.

This context can best be presented in the following graphic:[78]

Figure 7: Industry Globalization Potential by Yip[79]

Abbildung in dieser Leseprobe nicht enthalten

Source: Yip (2003), p. 10 (Own presentation).

These globalization drivers relate to the competitive forces presented by Michael E. Porter (see chapter 2.2.3), but they are different and work at a more superior and exponentiated level. Mostly the upswing of industry globalization will also raise the strength of competitive forces. In difference to a closed, domestic industry these forces may come from all around the world and are also interconnected on this level. So it is very important to examine how industry globalization drivers shape the threat of entry and rivalry referring to existing competition.[80]

If a company sees great potential of a global strategy and wants to ensure it, there are different options to do so. Yip calls them global strategy levers.[81] Concretely he men- tions market participation, products and services (global vs. local), activity locations (e.g. of the value chains), marketing and competitive moves.[82]

The relations between the factors mentioned above can be best explained by the so called globalization triangle by Yip: Industry globalization drivers, global strategy levers and global organization factors form in combination the conditions for the potential globalization costs and benefits:[83]

Figure 8: Globalization triangle by Yip[84]

Abbildung in dieser Leseprobe nicht enthalten

Source: Yip (2003), p. 7.

How the global strategy levers could achieve globalization benefits will discussed later on in the chapter 4.2., which is about the strategic proposals for E.ON and RWE.

There are in combination two success factors for a global company: First the traditional concepts referring to the building and maintaining a competitive advantage. Second the presence of global capabilities and networks with an access to the best resources and expertise available worldwide as well as the know how to connect and use these factors effectively.[85]

According to Yip a successful total global strategy has three separate components:[86]

1. Developing the core strategy.
2. Internationalizing the core strategy
3. Globalizing the international strategy

The core strategy is the basis of sustainable strategic advantage and usually first developed in the home country, but not always. Without a base of a good core strategy, a company should not think about a global strategy. This strategy could then be expanded and adopted in different countries by internationalization. Firms must first understand the international basics of their industries before aim a global strategy. The third step means a global integration, often less know by multinational companies. The global approach also means more and is different to the usual knowledge referring to tailoring for national markets. It could also mean to break the principles of international business.[87] The three steps can be best presented as follows:

Figure 9: Components of a Total Global Strategy[88]

Abbildung in dieser Leseprobe nicht enthalten

Source: Yip (2003), p. 4

[...]


[1] Cf. German Bundestag (2002), p. 199.

[2] Cf. PricewaterhouseCoopers (2008), p. 3, Müller (2006), pp. 62 et seq., Wagner (2008), pp. 285 et seq., Kleinknecht (2008), pp. 10 et seq. and EC (2008).

[3] Cf. Wagner (2008), pp. 289 et seq.

[4] Cf. Franke (2007), p. 59-60.

[5] Cf. E.ON (2009a), p. 1.

[6] Cf. RWE (2009b), pp. 7-8.

[7] Cf. http://www.eon.com/en/presse/news-detail.jsp?id=8870&year=2008 (07.05.2009).

[8] Cf. Wagner (2008), p. 49, Oschmann (2002), pp. 26-27 and Müller/ Giber (2007), p. 2.

[9] Cf. Lai/ Chan (2007), p. 12.

[10] Cf. Freris/ Infield (2008), p. 51 and Simon (2006), pp. 232-235.

[11] Cf. Michel (2008), p. 85.

[12] Cf. Siebert (1999), p. 8.

[13] Cf. Faix et al. (2006), p.47 and Meier/ Roehr (2004), p. 11.

[14] Cf. Levitt (1983), p. 92.

[15] Cf. Yip (2003), p. 1.

[16] Cf. Siebert (1999), p. 8.

[17] Cf. Yip (1996), p. 47.

[18] Cf. Stöß (2007), pp. 16-18.

[19] Cf. Stöß (2007), p. 17.

[20] Cf. Stöß (2007), p. 18.

[21] Cf. Steinmann/ Schreyögg (2005), pp. 251 et seq., but also Welge/ Holtbrügge (2006), pp. 138. et seq.

[22] Cf. Steinmann/ Schreyögg (2005), p. 252.

[23] Cf. Yip (2003), p. 108. Yip refers a global strategy also for the value chain.

[24] Cf. Steinmann/ Schreyögg (2005), p. 255.

[25] Cf. Macharzina/ Wolf (2008), pp. 960 et seq. and Yip (2003), pp. 3 et seq.

[26] Cf. Steinmann/ Schreyögg (2005), p. 254.

[27] Cf. Yip (2003), p. 7.

[28] Cf. Yip (2003), p. 8.

[29] Cf. Yip (2003), p. 8 and Macharzina/ Wolf (2008), p. 963.

[30] Cf. Yip (2003), p. 8.

[31] Cf. Hungenberg (2001), p. 6.

[32] Cf. Camphausen (2007), p. 12.

[33] Cf. Camphausen (2007), p. 12 and Pfau (2001), p. 3.

[34] Cf. Müller-Stewens/ Lechner (2005), p. 20 and·Welge/ Al-Laham (2001), p. 17.

[35] Cf. Bea/ Haas (2005), p. 50 and Kreikenbaum (1997), p. 21.

[36] Cf. Steinmann/ Schreyögg (2005), p. 172.

[37] Cf. Steinmann/ Schreyögg (2005), p. 172.

[38] Cf. Camphausen (2007), p. 113 and Macharzina/ Wolf (2008), pp. 338 et seq.

[39] Cf. Porter (1986), p. 23, Porter (1992), p. 26 and Macharzina/ Wolf (2008), pp. 312-313.

[40] Cf. Porter (1996), p. 23, Porter (1992), p. 26 and Macharzina/ Wolf (2008), pp. 312-313.

[41] Cf. Porter (1996), p. 23, Porter (1992), p. 26 and Macharzina/ Wolf (2008), p. 312.

[42] Cf. Yip (2003), p. 29.

[43] Cf. Stöß (2007), pp. 11-12.

[44] Cf. Siebert (1999), pp. 8-10.

[45] Cf. Kutschker/ Schmid (2006), p. 193.

[46] Cf. Lessard (2003), pp. 83 et seq.

[47] Cf. Lessard (2003), p. 85.

[48] Cf. Lessard (2003), p. 84.

[49] Cf. Lessard (2003), p. 85.

[50] Cf. Steinmann/ Schreyögg (2005), p. 256, Macharzina/ Wolf (2008), p. 963 and Welge/ Holtbrügge (2006), p. 29.

[51] Cf. Rugman (2001), p. 583.

[52] Cf. Macharzina/ Wolf (2008), pp. 955-957.

[53] Cf. Macharzina/ Wolf (2008), p. 957.

[54] Cf. Macharzina/ Wolf (2008), pp. 958-959.

[55] In the summer 2008 the oil prices rose over 140 $ and the transport costs increased as well. That blocked the international good traffic noticeable. The long term oil price development has therefore to take into account referring to the globalization process. Cf. FAZ, No. 149, 28th June 2008, p. 14.

[56] Cf. Yip (2003), p. 24.

[57] Cf. Macharzina/ Wolf (2008), p. 959.

[58] Cf. Yip (2003), pp. 5-6.

[59] Cf. Steinmann/ Schreyögg (2005), p. 172.

[60] Cf. Zou/ Cavusgil (1996), p. 61.

[61] Cf. Zou/ Cavusgil (1996), p. 61.

[62] Cf. Zou/ Cavusgil (1996), p. 61.

[63] Cf. Zou/ Cavusgil (1999), p. 61.

[64] Cf. Macharzina/ Wolf (2008), pp. 959-60. Macharzina and Wolf use the term “multinational indus- tries”. In this context they are called “multilocal”, in order to be conform with the terms of Yip, as presented in the chapter 2.1.3.

[65] Cf. Macharzina/ Wolf (2008), p. 960.

[66] Cf. also Welge/ Holtbrügge (2006), pp. 138,

[67] Cf. Macharzina/ Wolf (2008), p. 960.

[68] Macharzina and Wolf name them “multinational”. In this context they are called “multilocal”, in order to be conform with the terms of Yip, as presented in the chapter 2.1.3.

[69] Cf. Macharzina/ Wolf (2008), p. 961.

[70] Cf. Macharzina/ Wolf (2008), pp. 961-962.

[71] Cf. Macharzina/ Wolf (2008), pp. 962-963.

[72] Cf. Macharzina/ Wolf (2008), p. 963.

[73] Cf. Yip (2003), p. 6.

[74] Cf. Yip (2003), p. 6.

[75] Cf. Yip (2003), p. 10, Yip (1996), p. 27 and Lloyd (1996), p.18.

[76] Cf. Yip (2003), p. 10 and Yip (1996), p. 26.

[77] Cf. Yip (2003), p. 10, Yip (1996), pp. 26-27 and Lloyd (1996), p. 18.

[78] Cf. Yip (2003), p. 10 and Yip (1996), p. 26.

[79] Cf. Yip (2003), p. 10.

[80] Cf. Yip (2003), p. 29.

[81] Cf. Yip (2003), p. 10.

[82] Cf. Yip (2003), pp. 13-14, Yip (1996), pp. 30 et seq. and Lloyd (1996), pp. 18-19.

[83] Cf. Yip (2003), pp. 6-7.

[84] Cf. Yip (2003), p. 7.

[85] Cf. Lloyd (1996), pp. 19-20.

[86] Cf. Yip (2003), pp. 3-4.

[87] Cf. Yip (2003), pp. 3-4.

[88] Cf. Yip (2003), p. 4.

Details

Pages
132
Year
2009
ISBN (eBook)
9783640470846
ISBN (Book)
9783640471041
File size
2 MB
Language
English
Catalog Number
v139127
Institution / College
University of Applied Sciences Essen
Grade
1,8
Tags
Globalization

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Title: Globalization drivers for renewable energies referring to electricity production of E.ON