Environmental Scan of Canadian Solar, Inc.

The commercial development of solar energy is a lengthy process influenced by the cost of alternative conventional sources of energy. The solar industry is vulnerable to the varied prices of competitor sources of energy, especially since it is considered as the most expensive renewable energy (Jones & Bouamane, 2012). Since the introduction and implementation of solar energy as a renewable source of energy, global installation trends have significantly increased in various developed and developing countries. There have been varied trends in the uptake of solar energy, dependent on various factors, such as government policy. This paper discusses the solar industry and market trends in the United States (US). It also includes a report on an environmental scan of the industry, performed in the context of Canadian Solar Inc. 

Market Trends in the US 

At the end of 2018, the US was one of the leading markets in solar energy, accompanied by China and India. The US recorded 11 Giga Watts-Direct Current (GW-DC), which was lower than China’s 44GW-DC, and higher than India’s 8GW-DC. Solar installations in the US represent 22% of all new US electric generation capacity, where the highest generation capacity is natural gas at 58%. Global shipments from the US decreased by 5% to 89GW (Feldman & Margolis, 2019). The decrease in global shipments could be attributed to the increased generation of solar energy from Asian countries, leading to increased global competition. 

Despite the recorded decrease in global shipments from the US, there is an increase in solar PV installations. The increase is associated with various factors, such as the reduction of coal power and coal mining. 93% of coal produced in the US is used for electricity production. Despite the popularity of coal as a source of energy in the US, the recorded decline is a consequence of technological advancements, price pressure from natural gas and renewable energy technologies like solar photovoltaic (PV) technology. Moreover, increasingly strict energy regulations have led to a decrease in the popularity of coal as a source of energy. On the other hand, solar energy is a clean source of energy, which makes it more favorable (Louie & Pearce, 2016). 

The emergence of the utility sector PV market led to an increase in US solar market trends. Utility sector PV installations grew from 15% in 2006 to 32% in 2010. The highest growth rate was recorded in solar water heating installations, which recorded the largest growth in five years in 2010 (Sherwood, 2011). The emergence of the utility sector PV market led to the evolution of the US residential solar PV installation industry. Between 2000 and 2010, numerous installers entered the market. The solar PV industry became concentrated due to the disproportionate growth of installers in comparison to the market share. The increase in market concentration extended to all levels, including national, state, and local markets. Both high- and low-volume companies increased their market shares (OShaughnessy, 2018). 

Solar Industry Opportunities 

The existence of a variety of customer finance options can act as an opportunity in the solar industry. Providing a variety of customer finance options leads to an increase in market concentration. Three possible finance options cater to different customer needs, thus encouraging them to purchase and install solar PV. Customers can either buy and own the PV system, use a non-integrated third-party provider (TPP) who provides a period lease, or who installs and owns the system. Additionally, customers can buy or own a PV system on a third-party ownership (TPO) agreement. The introduction of policy reforms that excluded TPPs from utility regulations acts as an opportunity in the solar PV industries, where solar installers can encourage customer purchases, thus increasing their market. Additionally, residential PV systems are eligible for federal tax incentives (OShaughnessy, 2018). The tax incentives, coupled with the availability of various customer finance options, act as opportunities for solar PV companies trying to enter the US market or increase their market share. 

Another opportunity that solar manufacturers can take advantage of is the introduction and expansion of tariffs in Chinese solar PV products. Therefore, companies can form coalitions with other players in the industry and develop congressional interests to form a protectionist coalition. The coalition can assist companies in utilizing trade laws to their advantage (Hughes & Meckling, 2017). 

Solar Industry Threats 

Improved production methods resulting from technological advancements influence the solar PV manufacturing sector. Despite the increase in solar PV installations, solar PV manufacturers in the US are grappling with falling module prices. The falling module prices result from a global surplus of manufacturing capacity, especially from China. The decrease in prices has forced some companies to declare bankruptcy, close factories, or reassess their business strategies (Platzer, 2012). Though lower prices favor consumers, they hurt manufacturers in the US and Europe. 

In 2011, the US solar industry employed over 25,000 workers. Its cell and module market increased from $1.2 billion to $6.4 billion between 2006 and 2010. Double-digit growth in PV installations resulted from government support, such as tax incentives and stimulus funding. Despite the growth, PV production companies are characterized by a relatively short life span. The short life span is indicated by the closure of several PV production facilities in 2011, including Evergreen, which had been one of the leading PV producers (Platzer, 2012). 

Global production shifts also act as a threat to the solar production industry. Germany, Italy, and the US are some of the countries that have taken policy actions targeting a reduction in incentives to install solar PV systems. In 2004, several countries introduced incentives for solar installations, which attracted numerous companies to enter the solar PV industry. At the time, about 1000 manufacturers supplied the solar PV market. Declining and weak prices led to rapid consolidation on a global scale. Manufacturers in China and Taiwan started expanding rapidly, targeting a reduction in unit costs and obtaining economies of scale. The associated technological developments and a reduction in the price of polysilicon led to a decrease in the price of solar cells. The increase in price pressure resulted in the closure of some firms, such as Evergreen Solar and Q-Cells, while other companies took to laying off workers as a cost-saving approach (Platzer, 2012). 

Moreover, the presence of subsidized solar PV products from China acts as a threat to the US solar industry. Due to the subsidized prices, Chinese manufacturers can export PV cells and modules at below-market prices, leading to an unfair global condition. Additionally, Chinese manufacturers have been accused of damping on its exports, further disadvantaging US manufacturers, among others (Platzer, 2012). 

Global Competition 

China is the leading solar PV producers globally. Its status as a leading producer of solar PV can be attributed to the increased government support and introduction of incentives to encourage the use of renewable energy. In 2005, the Chinese government introduced the Renewable Energy Act, which demanded the mandatory grid connection of renewable energy. The Act forced local governments to support solar PV manufactures in their area of jurisdiction. Various companies were founded in response to the strong support from the government. 

Apart from government support, Chinese PV manufacturing companies could also obtain investment from the global capital market. The Chinese government also pursued an increase in the local demand for PV by introducing an explicit national target and introducing financial incentives. As a result, numerous companies in China benefitted from the steps taken by the government and became some of the leading manufacturers of solar PV globally (Huang et al., 2016). One such company, which is currently Canadian Solar Inc.’s global competitor is Trina Solar, which was founded in 1997. 

Internal Analysis: SWOT Analysis 

Strengths 

Canadian Solar Inc. is one of the leading solar PV production companies. The company is characterized by various strengths that support its growth in the solar PV market. One of the strengths is that the company has dedicated resources and personnel to the automation of services and activities within its production processes. The automation process is guided and supported by the company’s move to engage and employ various personnel who are conversant with automation procedures. For instance, Canadian Solar Inc. pulled in Dr Shawn Qu to serve as the company’s chairman, president, and chief executive officer (CEO) since the company was founded in 2001. Dr Shawn had extensive experience in solar production automation from his position at Automation Tool Systems Inc. (ATS) ( Canadian Solar Inc. Financial Report 2019 , 2019). Therefore, the company leveraged its employee’s knowledge and skills to support the automation of its production processes. 

Another strength that further enhances the company’s position in the global solar PV industry is its strong distribution network. Canadian Solar Inc.’s strong distribution network is supported by the availability of adequate financial and personnel resources. The company has adequate project financing, which complies with its values. The company aims to sell its projects to tax-oriented, strategic industry investors, which supports the development of a strong distribution network. 

Having a strong brand portfolio also acts as a strength for Canadian Solar Inc. The company has dedicated numerous resources to build a strong brand portfolio, which is critical for the company to expand its products and market share. One of the target areas is in the development and commercialization of higher conversion efficiency cells, which is also critical for cost-effectiveness in the production of solar PV systems. Manufacturing high-efficiency cell structures increase the company’s competitive advantage and maintaining a price premium. It also increases brand recognition in the solar PV industry. Canadian Solar Inc. also uses brand sponsorship as a marketing approach to establish brand dominance and create a strong brand portfolio. 

Canadian Solar Inc. also has a successful track record of vertical integration in the solar industry. The company uses vertical integration with upstream manufacturing as a manufacturing strategy. Vertical integration acts as a key competitive factor. Additionally, it also increases the company’s distribution network. Having strong relationships with key distributors or system integrators in the solar PV industry supports the rapid response to varying customer demands, and devotion of more resources to development, production, and sale of new and existing products. 

Another strength associated with Canadian Solar Inc. is its successful track record in product innovation. The company has four research and development centers dedicated to product innovation. The centers are well-equipped with state-of-the-art equipment and are committed to developing new high-efficiency solar cells and advanced solar processing technologies. Additionally, the company has also dedicated resources to develop high-quality and low-cost products, that would increase its competitive advantage and offer its customers more value for money. The research and design centers also focus on developing testing and diagnostic techniques to improve solar module production yield, reliability, and efficiency. 

Lastly, Canadian Solar Inc. has a strong base of reliable suppliers, which helps the company maintain consistency in the quality of its products and cost-efficiency. The suppliers are engaged using a long-term supply agreement, which enhances the company’s ability to resolve disputes. The long-term supply agreements with silicon and wafer suppliers ensure that the company enjoys a stable supply of raw materials to satisfy production requirements ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Weaknesses 

There are several areas where Canadian Solar Inc. has the potential to improve. One of the areas that the company can improve upon is in globalization. Various competitors are dedicating resources and personnel to globalization, thus leveraging the ballooning global market, yet Canadian Solar Inc. has been reluctant to dedicate more resources to globalization efforts. One of the causes of failure is the fluctuating source of revenue, which creates difficulties in staffing and managing overseas operations. The company is also unable to provide customer support and services in various countries. The company has also failed in various international market entry attempts due to differing regulatory and tax regimes. It has also failed to dedicated adequate resources to understand local markets and trends to maintain effective marketing and distribution presence in various countries. The failure to leverage globalization places the company at a disadvantage in comparison to its competitors, thus reducing its competitive advantage. 

Another weakness that Canadian Solar Inc. faces is the inconsistencies between its vision and practices. The company aims to expand geographically to cover more diverse markets, yet its investment in the required technologies is wanting. The company needs to enhance its production technologies to improve product performance and yields for it to achieve geographic expansion. Production delays and failure to achieve production targets plague the company due to manufacturing difficulties associated with production failures, equipment malfunction, and process contamination. 

Lastly, another weakness that affects the company’s competitive advantage is the lack of suitable policies and packages to attract and retain qualified technical personnel. The solar PV industry is characterized by high competition for qualified technical personnel. Failure to attract such personnel jeopardizes the company’s production process, product quality, and reputation. Canadian Solar Inc. needs to develop more inclusive employment policies to attract diverse technical experts, thus taking advantage of the widening global talent pool ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Opportunities 

New environmental policies provide opportunities for Canadian Solar Inc. to increase its production and market share. The policies event the playing ground for companies in the solar PV industry, and encourage the installation of solar systems and technologies. One of the policies is Net Metering, which allows customers who generate solar energy to sell their surplus energy back to the grid. The policy provides economic benefits to companies in the solar PV industry, such as the creation of job opportunities and increasing income and investment. It also increases the demand for solar energy, increasing the solar energy market. Consequently, the market share for companies in the solar industry increases (Stokes & Breetz). Canadian Solar Inc. can also take advantage of the federal investment tax credit. The company can use the policy to solicit for investment into the firm and provide a stable supply of revenue. 

Another opportunity that Canadian Solar Inc. can take advantage of is the decrease in global transportation costs. The lower transportation cost can lead to a decrease in the company’s shipping costs, which would lead to a decrease in production costs and the overall costs of its products. Decreasing its product costs would lead to competitive pricing, thus increasing competitive advantage. The company can choose to leverage the decrease in production costs by increasing its profit margin of providing high-quality, affordable products to its customers, thus expanding its customer base and increasing customer loyalty. 

Canadian Solar Inc. can also take advantage of its strength in research and development by dedicating more resources to expand its product scope. The company has adequate and qualified personnel to support expanding into other markets by increasing its product scope. One of the opportunities is in producing solar energy for injection into the electricity grid. This would allow the company to take advantage of the new metering rule. The company would increase its revenue, increase brand awareness, and improve its reputation as a reliable solar energy provider ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Threats 

One of the chief threats that Canadian Solar Inc. faces is the shortage of a skilled workforce. There is high competition for qualified technical personnel in the solar industry. Therefore, the company faces uncertainty on its ability to attract, recruit, train, and retain quality personnel. Moreover, acquiring qualified personnel in various geographic regions is also a challenge to the company, especially due to its failure to dedicate resources to the search of such personnel. The lack of availability of personnel leads to a decrease in product quality and the company’s profit margins. 

Another threat that the company faces is the failure to develop new innovative products consistently. Canadian Solar Inc. produces innovative products as a knee-jerk reaction to its competitors’ creation of new products. The company’s long-term agreements with suppliers can be leveraged to develop relationships with various suppliers for new materials, supportive product innovation. However, they can make it difficult for the company to swiftly respond to changes in the solar industry market, such a reduction in the cost of a product by competitors such as Trina Solar. The long-term supply agreements make it difficult for the company to adjust material costs. 

Canadian Solar Inc. is also exposed to various credit risks. The company offers credit terms to customers, which may increase its costs and expenses. Canadian Solar Inc. offers unsecured short-term and medium-term credit to customers. The loans are dependent on the customers’ creditworthiness and market conditions. If some of the customers become bankrupt or insolvent, then the company would lose considerable revenue. Another threat to the company is its strategic business approach which favors selling products to high-credit risk companies to capture emerging markets. The customers are small young companies with unfunded working capital and limited operating histories ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Another threat that the company faces is the shift in consumer behavior, favoring online purchases and services. The change could act as a threat to the supply chain model based on the existing physical infrastructure. 

Industry, Market, and Customer Analysis 

PESTEL Analysis 

Political Factors 

Numerous factors can impact Canadian Solar Inc. long-term profitability in various market structures. The company had various services in various countries, which increases its liability to varying political factors. Due to its coverage in different countries, one of the chief factors that can impact the company is political stability in the host country. Political instability could lead to loss of production facilities and significant decreases in the profit margin. Another political factor that could impact the company is the corrupt practices and laws in the host country. Canadian Solar Inc. is subject to the Foreign Corruption Practices Act, which requires companies to refrain from paying government agencies and companies to gain market entry ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Corruption practices in various nations are also associated with the red tape characterized by bureaucracy. The company is liable to any of its employees’ violations to the FCPA provisions. Additionally, Canadian Solar Inc. is subject to the legal framework for contract enforcement in various nations. The contract enforcement laws may impact the company’s relationships with its suppliers and customers. The company develops long-term agreements with suppliers, which makes it difficult to change contract terms based on the contract enforcement laws in various countries. Intellectual property protection rights are also another political factor that impacts the company. The company could be required to pay significant damage awards due to infringement and misappropriation claims by third-parties. Canadian Solar Inc. must be able to develop and use new technology innovations without infringing on third-party intellectual property rights. 

Economic Factors 

One of the main economic factors that can influence Canadian Solar Inc. is the stability of the host country’s currency. Fluctuations in foreign currency exchange rates could negatively impact marketing, distribution, and sale of solar PV products and services globally. Currency fluctuations adversely impact financial performance by reducing profit margins and reducing the availability of stable financing sources. The company will be forced to increase its revenue contribution to various global regions. The most significant foreign currency fluctuations that could affect the company are the British pound, Renminbi, Japanese yen, Euros, Thailand Baht, and the South African rand ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Another economic factor that could affect Canadian Solar Inc. is a change in the effective tax rate. The changes could lead to adverse impacts on the company’s business. The tax rates are dependent on the jurisdiction where profits are earned and taxed. There can be changes in the valuation of deferred tax assets and liabilities, changes in available tax credits, and changes in tax laws or interpretations of tax laws, which could adversely impact the company’s business practices and reduce its profit margin. For instance, a decrease in renewable energy tax credits could impact the company by reducing its profit margin and increasing its expenditure. Labor costs also affect the company directly or indirectly. For instance, low labor costs in China increase the competitive advantage of Trina Solar, one of the company’s competitors. 

Social Factors 

Society’s culture influences organizational culture in a business environment. One of the chief factors that could influence Canadian Solar Inc. is the demographic factors, such as education and skill level. Demographic factors include educational attainment levels in the country. High-educational attainment levels ensure that there is a supply of qualified labor for the technological industry. The availability of qualified workers is also dependent on the education system and training programs implemented in institutions. For instance, in some countries, there are limited programs that focus on renewable energy, which would force the company to obtain workers externally, thus increasing its expenditure. 

Another factor that can influence Canadian Solar Inc. is the culture, which includes gender roles and social conventions. The company does not have policies that address discrimination against workers or suppliers based on gender. However, various countries, such as the US have sex-based gender discrimination policies that prohibit companies from discriminating against employees based on gender. The company has to adhere to these laws or face discrimination penalties that would lead to financial losses. 

Technological Factors 

Recent technological advancements by the company’s competitors is a critical technological factor that would impact the market share and revenue. Slow development and implementation of innovative technologies is a disadvantage for Canadian Solar Inc. Technology affects the development and delivery of products and services. For instance, automation of services using machine learning and robotics increases production efficiency and reduces production costs. It also reduces the cost of labor, and improves the consistency of products and services provided. 

Environmental Factors 

Varied environmental factors impact the solar industry, depending on the geographical location and environmental standards present in the area of jurisdiction. Due to the dependence of solar energy, the most critical factor that influences solar production companies is weather and climate change. The selected host country should have a consistent supply of solar energy based on the area’s climate. Though climate change impacts companies in the solar industry, the impact is gradual due to the gradual nature of the change. Air and water pollution regulations also determine the company’s water and air treatment practices before releasing them to the natural environment. Changes in air and water pollution regulations would significantly affect the company’s expenses. Other environmental regulations that impact the company include noise and solid waste pollution regulations ( Canadian Solar Inc. Financial Report 2019 , 2019). 

Legal Factors 

Legal factors that are likely to impact Canadian Solar Inc. are intellectual property laws, discrimination laws, health and safety laws, and consumer protection laws. 

Porter’s Five Forces Analysis 

Threats of New Entrants 

New entrants in the solar PV industry is likely to put pressure of Canadian Solar Inc. in terms of research and development of innovative systems and products. For instance, technological advancements in the Chinese solar PV industry leads to a decrease in production costs (Comello & Reichelstein, 2016). Decreasing production costs increases the competitive advantage and market share for Chinese companies, such as Trina Solar. As a result, Canadian Solar Inc. would be forced to reduce its production costs by changing production materials and processes. The company can also dedicate more resources to its research and development sectors, thus innovating new products and services. The new products and services would attract a new customer base and encourage customer loyalty in old customers. 

Supplier Bargaining Power 

Companies in the solar PV industry obtain raw materials from various suppliers. Established suppliers use their prominent position to bargain for higher prices, thus reducing the company’s profit margin. However, Canadian Solar Inc. manages suppliers by developing long-term relationships with suppliers characterized by long-term agreements (Jia et al., 2016). The agreements protect the company from sudden demands in higher prices from suppliers, giving them an advantage over its competitors. 

The company should also invest more resources into identifying new innovative materials that would allow them to switch materials if faced with increased price demands. Another approach that Canadian Solar Inc. can take is by developing dedicated suppliers who are dependent on the company. The company can then ensure that suppliers provide consistently high-quality materials by training them. Additionally, involving dedicated third-party suppliers also ensures that the company reduces the suppliers’ bargaining power. 

Bargaining Power of Buyers 

Customers demand more value for their money with the expanding product scope. The increased demand leads to a decrease in profit margins for companies such as Canadian Solar Inc. One of the ways that the company can reduce the bargaining power of its buyers is by increasing its customer base. It can do so by allocating resources to marketing practices and programs. Increasing the customer base would enable Canadian Solar Inc. to streamline its sales and production processes. 

Additionally, consistently producing innovative products would also decrease the bargaining power of buyers. Customers tend to demand discounts on established products. New products can be competitively priced while maintaining a fair profit margin. Introducing new products also attracts new customers and establishes customer loyalty, thus increasing the customer base and decreasing bargaining power of buyers. 

Threats from Substitute Products and Services 

New products are developed and introduced to the market. Substitute products, such as more efficient solar cells would render some of the company’s products market value. The company can mitigate this by increasing its product scope. The company can also become service-oriented by tapping into the solar utility service sector. Canadian Solar Inc. should also allocate more resources to market research to determine changing customer needs and demands. It will help the company to remain relevant in the solar PV industry. 

Rivalry among Existing Competitors 

Intense competitor rivalry among companies in the solar PV industry leads to a decrease in product and service prices, thus reducing company profit margins. Canadian Solar Inc. can handle intense rivalry by developing sustainable differentiation and increase its economies of scale. The company can also form coalitions with its competitors to increase solar product and service market share, rather than competing for a small market share. 

Conclusion 

Therefore, based on the analysis of the external and internal environment surrounding Canadian Solar Inc., political and economic elements are the most influential for the company. Political factors include political stability and corruption practices laws. Economic factors include currency stability, tax rates and labor costs. These factors influence financial performance and competitive advantage. Factors influencing customers are product innovation and costs. 

References 

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