Executive Summary
Saudi Solar Company Limited is a startup company that seeks to offer PV installation services to residential, commercial, industrial, and governmental entities in the Kingdom of Saudi Arabia. The company vision and mission statements show its commitment to transforming the energy sector in the country and promoting the use of green energy as a way of protecting the environment.
In this report, the strategic question is to determine how this company can help its clients adopt PV as a self-consumption strategy for energy optimization and monthly bills reduction. The elements that are going to answer the above question are strategic partnerships, innovation, and regular market research, as discussed in the paper. As stated in its value proposition, the company will help residential, commercial, industrial, and governmental entities in Saudi Arabia embrace self-production and consumption of solar power as a way of reducing their monthly energy bills. The calculated RIO shows that this is a project worth shareholders’ investment.
Introduction
Background
Saudi Solar Center Limited (SSCL) is a startup energy services company that seeks to transform energy production and consumption in residential, commercial, industrial, and governmental entities in Saudi Arabia. The energy sector has been an area under intense scientific research as the stakeholders struggle to find ways of reducing the emissions of greenhouse gases caused by the use of fossil fuels. Renewable energy has presented itself as the main solution to fossil fuel-related pollution. Countries all over the world are now promoting the production and consumption of renewable energy as a way of ensuring that they reduce environmental pollution and improve the sustainability of their energy sources.
Homeowners and companies in most of the European countries, such as Germany and Spain, are now encouraged to participate in the production of renewable energy using photovoltaic (PV) systems. This trend has given rise to the concept of self-consumption, where residential, commercial, industrial, and governmental entities produce their energy to reduce their reliance on the national grid.
The concept is increasingly becoming popular in developed countries as they try to go green in their energy production and consumption. Germany is a good example of a country that has moved a step ahead of others by coming up with a net-metering system that allows domestic and commercial entities that produce more energy than they need to supply the excess energy to the national grid and be compensated for the value of their production.
SSCL seeks to borrow a business model that has been in use in these developed countries and modify it to fit into the local Saudi Arabian context. The firm will work closely with the leading solar companies in the country and relevant government agencies to ensure that homes and companies start ambitious projects of producing and consuming their energy with the help of PV systems. The company will have a team of experts who will be responsible for the installation and maintenance of the system for clients.
Saudi Arabia is one of the countries that receives regular sunlight throughout the year, and solar energy production can be more successful there than it is in Europe. A city like Riyadh has become a global business hub, while Mecca is a tourist destination center, which means that the need for energy is on the rise. Residential, commercial, industrial, and governmental entities are now struggling to manage their monthly bills by optimizing their energy use. However, their attempts are often yielding limited benefits in terms of the reduction of monthly bills.
This company offers them the best way of dealing with this challenge. By installing the right size and number of solar panels, these entities can fully rely on their systems to meet their energy needs. The firm will also enable companies to considerably reduce their reliance on energy supplied from the national grid by the government. Working closely with the solar manufacturing companies, government agencies, and environmental conservation groups, this company will not only be making profits through the installation and maintenance work but also help these other entities achieve their goals. It will play a significant role in ensuring that Saudi Arabia’s energy sources are sustainable and that the country slashes its emissions of greenhouse gases.
Company’s Vision and Mission Statements
SSCL is a service company with a team of engineers and technicians responsible for the installation and maintenance of the PV systems for our clients within the country. Its initial market will be in Riyadh and Medina, where there is a huge demand. However, the vision and mission statement must reflect the company’s long-term goals as it continues to operate in this market. The vision statement looks at what this company seeks to achieve in the market as it continues with its operations. At the moment, the following will be the appropriate vision statement for the company:
To be the preferred company in the installation and maintenance of the PV system in the Kingdom of Saudi Arabia.
Currently, SSCL is only concentrating on the installation and maintenance of the PV system within the market. This is what is reflected in its vision statement. However, as it continues to grow, it may consider expanding its line of products and services. If that happens in the future, then the vision statement may be adjusted to reflect the changing market forces and product offerings. The following will be SSCL’s mission statement:
To help residential, commercial, industrial, and governmental entities in Saudi Arabia to have access to cheap, clean energy.
It is important to note that although the firm’s vision statement reflects its keenness to employ competitive strategies to be the best in the market, the mission statement reflects its service to the customers. It is an important message to the customer, government, environmental agencies, and other partners that although this is a profitable company, its ultimate goal is to protect the environment and reduce expenses that Saudi Arabians incur from energy use.
Company’s Objectives
It is important to note that there are other players in the market offering the same services as what SSCL is planning to offer using different modes. To come out as the preferred company in the industry, the objectives must be developed in a very unique manner. It will be necessary to entwine company-based, customer-based, and environmental-based objectives together. It will help in creating the impression that SSCL is not just interested in making profits but also in caring for its clients and protecting the environment. In marketing, perception is everything. Once a firm is perceived as being exploitative, then it may draw hatred toward itself, and this is what SSCL is keen on avoiding. Based on that premise, the following objectives will be used to define the firm’s operations in the market.
- To create customer loyalty by offering the highest value every time they purchase our products
- To develop a communication platform that will allow clients to reach out to the company’s employees whenever they need services from the firm
- To achieve growth in the market and strengthen our competencies in service delivery
- To be one of the leading research institutions in the field of renewable energy within Saudi Arabia
- To work closely with business partners, government agencies, and environmental groups to achieve mutual growth
Unique Value Proposition
SSCL has selected a niche in the market where it can offer its customers high value. Customers would want to know what this firm will be offering to them as opposed to their rivals and how it seeks to solve their problem of high energy costs. The following with being SSCL’s unique value proposition: We help residential, commercial, industrial, and governmental entities in Saudi Arabia embrace self-production and consumption of solar power as a way of reducing their monthly energy bills.
Environmental Analysis
According to some scholars, when a firm is planning to initiate its operations in the market for the first time, several activities must be conducted by the management and employees. An environmental scan is one of the most important activities. SSCL will need to understand the local market forces to plan its operations. Analyzing both the internal and external environment will, therefore, be very important.
Environmental Analysis
Macro Environment Analysis Using PESTEL Model
This company will need to understand the external environment within which it will be operating. It will have to understand all the forces that will directly or indirectly affect its operations within Saudi Arabia. Using PESTEL will enable the management to understand the important macro-environmental forces that must be taken into consideration when formulating the appropriate strategies of operation. This model considers the political environment as one of the most important macro-environmental factors that affect a firm’s operation.
Saudi Arabia has enjoyed a long period of political stability since the formation of the kingdom in 1932. The stable political environment means that government systems, especially the security instruments, are functional. Having a peaceful country is important for the growth of a company. The fact that the country has a stable political climate is an assurance to SSCL that security and rule of law will be guaranteed in the country.
The political rulers of this country have been supportive of renewable energy projects and companies. It is another assurance that this firm may get direct government support as it seeks to promote the generation and consumption of new energy. Such a supportive political environment means that the management will need to come up with appropriate engagement strategies to help it work closely with the government.
The economic environment is another important factor that SSCL must consider as it starts its operations in the market. One of the most important economic factors that a firm must put into consideration is the purchasing power of the targeted customers. The product must be affordable to the targeted customers. Saudi Arabia has one of the strongest economies in the Middle East and North Africa (MENA) region. The city of Riyadh, for instance, is home to affluent Saudi Arabians and foreigners who are attracted to its booming oil industry and developed infrastructure. Most homeowners in this city can afford to install and maintaining PV systems.
They are financially empowered and hence can afford to have alternative sources of energy to support the other sources currently in use. The growth of the country’s economy, especially the rapid diversification supported by the government, will offer SSCL an impressive market where it can grow rapidly. The government of Saudi Arabia, according to recent reports, is about to come up with incentive programs to promote the growth of green energy production and consumption.
Germany currently pays those who supply energy to the national grid using a PV system 5.63 cents/kilowatt-hour (kWh). There is a proposal for the Saudi government to pay 2.3¢/kWh for those who supply solar energy to the national grid. Compared with Germany, then, the incentive offered by the Saudi government is less attractive. However, the government intends to find ways of creating better incentives to spur growth in this sector. This new company will benefit from such initiatives. The government of Saudi Arabia is currently offering holidays to renewable energy companies. SSCL will benefit from these tax incentives.
The social environment is also important in defining how successful a firm is in the market. A firm must understand how the social environment affects its operations in the market. One aspect of the social environment that is critical for this firm is the academic empowerment of the target market. Educated people understand the problem of global warming and climate change and hence appreciate the need to embrace the use of alternative sources of energy.
Cities such as Riyadh and Medina have attracted several academicians in various fields, partly because of the massive investments made by the government to expand the existing institutions of higher learning and build new ones. The government has also been supporting students from pre-primary to institutions of higher learning. As a result, the number of college graduates in this country is on the rise. These are people who know that the future of this country relies on its ability to use energy sustainably. It will not be difficult to convince these academically empowered people to purchase our services.
They will understand that our services not only reduce their monthly budget on energy but also make the country more sustainable in terms of energy use. There is also a social culture where those who use alternative sources of energy are seen as classier and more environmentally concerned than those who are still fully relying on fossil fuels and electric power from the national grid. SSCL will ride in this wave to achieve rapid economic growth once it starts its operations.
The technological environment is another critical aspect of the macro-environment that the management of this company must put into consideration before starting its operations. SSCL is a technology-based company. It is using emerging technologies to convert solar energy into electric energy that can be used at home or in industries. The country has experienced massive technological developments in the energy sector in the recent past that will have direct impacts on this firm’s operations.
The country has benefited technologically by working with global firms from the United StatesStates, Spain, and Germany to improve the renewable energy sector. The management will monitor and embrace the emerging technologies that can improve its service delivery to the clients. New installation methods, new solar panel equipment, and other emerging technological trends must be mastered keenly to ensure that the company is always in line with the changing market needs.
The figure in Appendix 7 shows the level of growth of renewable energy sources in Saudi Arabia, which is largely attributed to technological developments. The firm must also be ready to be technologically innovative by understanding the forces unique to the Saudi Arabian market and finding ways of dealing with them in the most appropriate way possible.
In modern society, where environmental conservation is becoming a major macro-environmental issue, it will be important for this company to understand the environmental issues that are relevant to this industry. SSCL is a company that seeks to ensure that Saudi Arabians still have access to the energy they need for the domestic and industrial sector but in a way that is less harmful to the environment. This is done by reducing the reliance on energy sources known to be dangerous to the environment by promoting the use of green energy.
The growth of this company will, therefore, translate to better ways of using green energy in this country. The firm will ensure that its activities do not leave a carbon footprint. It will employ best practices, especially those used in Germany when installing the PV systems to reduce cases of environmental pollution. Given that the firm will be responsible for the maintenance of the system, it will be able to dispose of PV-related wastes in an environmentally friendly manner. Its activities will always focus on conserving the environment. The climatic condition in the country (regular sunshine throughout the year) is an important factor in this business. Energy production using PV systems in such weather conditions is very reliable.
The legal environment is the last factor that this model proposes must be considered by a firm to achieve the desired success in the market. According to some recent studies, a firm cannot operate in an environment that lacks proper legal structures. SSCL will need a legal environment that can protect it from the external players that may want to exploit it.
The legal environment also defines how it should relate to its customers, suppliers, the government, the public, and any other relevant stakeholders. Saudi Arabia has a clear legal structure that defines such a relationship. The law also explains the responsibilities of this company to each of these stakeholders. The management will ensure that the firm’s operations are within the legal framework set by various relevant agencies within the country. It is also expected that the government will protect it if other stakeholders embrace practices that are against the law.
Industry Analysis Using Porter’s Five Forces Model
After a critical analysis of the macro-environment, it is important to narrow down to the industry-level analysis. At this moment, it is clear what SSCL will have to deal with in terms of countrywide environmental forces. The forces discussed above affect all firms irrespective of the industry in which they operate. However, the industry-specific forces are yet to be critically discussed to help this company understand what to expect as it starts its operations.
SSCL will be operating in the renewable energy industry. Industry analysis is particularly important in helping a firm come up with operational strategies. The forces make it possible to understand the areas where the company will need to give special consideration to maintain its competitiveness in the market. Using Porter’s Five Forces Model, it will be possible to understand the forces within the local renewable energy industry. The following figure shows the model.
As shown in the above model, five industry-specific factors must be considered for a firm to know how to come up with the appropriate strategies in the market. The first factor is the level of competitive rivalry. The level of competition in the market helps a firm to know how to define its market strategies to give it an edge over its rivals. This is an industry that has yet to attract many competitors.
It is still growing, and as such, competitive rivalry is moderate. National Solar Systems, EGPHIL Solar Solutions, and Zayed Solar are currently the major companies that offer PV systems and installation services in the country. It is important to note that these competitors offer PV systems and installation services. It means that they can become either clients or strategic partners of SSCL if a deal can be reached where these firms outsource the installation services. SSCL can offer these services so that the current rivals can concentrate on the production of the systems. Currently, the competitive environment is not clearly defined, with small players—some of which are not even registered—offering the same services as what SSCL intends to offer.
The bargaining power of the suppliers is another critical issue that must be taken into consideration when analyzing the industry. Very powerful suppliers may dictate product prices and delivery strategies in a way that may be unfavorable to this new company. According to a recent report, Riyadh and Medina are currently becoming a major target market for PV system manufacturers.
The growing affluent class and regular sunlight have attracted many suppliers from various parts of the world. With several suppliers in the market, SSCL will have several choices to make when planning to purchase the inventories. It means that the power of the suppliers is relatively low in the market because of their high number. This is an advantage to this firm. It is an assurance that it will not be exploited by unscrupulous suppliers who may want to get abnormal profits from it.
The bargaining power of buyers is another major issue that the management of SSCL will need to look at before coming up with an appropriate strategy. When suppliers have several options to make when planning to purchase a product, then they become very powerful because they know firms will try to do everything to please them. In the current Saudi Arabian market, the power of buyers is average. The concept of green energy is still relatively new, and it is yet to be fully embraced.
As such, a few customers who are already aware of the importance of having renewable energy sources are always willing to purchase the system once presented with the opportunity. These customers may have several options to make, but the market is currently flooded with suppliers of the system, not installation and maintenance firms. The problem with the suppliers is that once they install the system, they are always reluctant to follow up on the issue of maintenance. As such, this firm will have relatively few direct competitors.
This means that once SSCL starts its operations, it will not be greatly affected by the strong bargaining power of the buyers. However, it is important to note that when it comes to organizational buyers, especially large companies, this firm will be affected by their strong bargaining power. The volume of their purchase and the fact that they can easily get the services from other firms give them strong bargaining power. Coming up with a strategy of managing this power will be critical.
The threat of new entrants coming into this industry is real. According to the recent studies, the main factors that determine the ease with which new entrants can come into a given market include the investment needed, government regulations, and the level of expertise that a company needs to operate within the industry. For a new firm that is planning to offer similar services as SSCL, the level of investment needed is relatively small. With the required skills, it is easy for a new firm to start operating in this industry. The Saudi Arabian government has created a liberal market where local and foreign firms can start and operate within the local market without unfair restrictions.
These two factors mean that the threat of new entrants coming into the market is high. The only factor that this firm may rely on to give it an edge is the technical skills needed for a firm to operate in this market. However, with the high number of graduates from local and international universities moving into Medina and Riyadh, this is the biggest threat that SSCL will have to deal with in this industry. It will have to come up with competitive strategies that will protect their market share once other companies start operating in the local market.
The final factor in this model is the threat of substitute products in this industry. As mentioned above, SSCL specializes in the installation and maintenance of PV systems within the country. However, it is important to note that other alternative energy sources are also becoming popular in the country. For instance, wind power is another very popular form of renewable energy that the locals are also embracing.
Biogas, tidal power, wave power, and geothermal power are the other alternative sources that may affect the profitability of this company because it does not offer services related to them. However, it is important to note that the threat posed by these substitute products is low. The reliability of sunlight throughout the year in this country has made PV systems very popular. It is considered a more reliable and effective source of clean energy. Electricity is another substitute product. However, its increasing price in the country over the recent past has motivated the locals to embrace solar energy.
Market Analysis
The industry scan gives a clear picture of the forces that SSCL must be prepared to deal with once it starts its operations. At this stage, it will be necessary to narrow the analysis even further by looking at the market forces relevant to this firm. Looking at the market size, the segment that will be targeted (competitors) and specific suppliers will give the management of SSCL a clearer picture of what it should expect once it commences its operations.
Market size
The size of the market is determined by the population of the targeted customers. In this case, targeted customers are residential, commercial, industrial, and governmental entities within the Kingdom of Saudi Arabia. According to a recent report, the population of Saudi Arabia is estimated to be about 33 million people. The recent population growth is attributed to high rates of immigration as people come to the country from other parts of the world to look for better employment opportunities. The figure below shows the population growth in this country from 1961 to 2012.
The population of the country, especially in the city of Riyadh, is rising very rapidly. However, of interest are residential, commercial, industrial, and governmental entities trying to find ways of cutting down their monthly electricity bills. The growth of these entities can be determined by the country’s GDP per capita growth. It is, therefore, important to determine the per capita income of the citizens of this country. The figure below shows the per capita gross domestic product of Saudi Arabia.
According to a recent report, Saudi Arabia has one of the highest per capita incomes in the MENA region. As shown in the data above, there was a consistent increase in per capita income in the country from 2007 to 2008 when the global economic recession affected the country’s economy. It dropped in 2009, but by 2010 it had started experiencing growth consistently to 2016. When doing this research, it was not easy to narrow down this analysis further to get the exact size of the middle class in the country because of the scarcity of data. Once this firm starts its operation, one of the first market research projects that it will need to collect from the government records is the exact size of the middle class because that is the primary market that will be targeted by SSCL.
Market segment
As a startup company, SSCL will need to identify a specific market segment that it can meet its needs best. The segment must be capable of sustaining the operations of this firm. As mentioned above, the market segment that is targeted by this firm in its initial operations in the residential, commercial, industrial, and governmental entities.
They have the purchasing power that this firm desires and understand and appreciate the need to embrace green energy. The country has experienced an upsurge in residential and commercial developments in the country. The industrial and governmental entities are also increasingly finding it relevant to use green energy in the country. As a new firm that is yet to start its operations, these entities will form a very important market segment. After operating in the market for some time, the firm will expand its segment when it is confirmed that the internal systems and structures can sustain the pressure.
Market competitors
It is important to identify the market competitors within the selected market segment discussed above. The initial market research conducted shows that there are no established firms specifically offering installation and maintenance services of PV alone. Most of the competitors that this firm will face are companies offering the PV systems in the market. They offer installation services as after-sale service. Some of these firms include National Solar Systems, EGPHIL Solar Solutions, and Zayel Solar.
They are classified as competitors because besides offering the PV systems, they are also offering installation services to their customers. In terms of size and position in the market, Zayel Solar is enjoying a huge market share. However, it is facing stiff competition at the top position of the industry from international players. The financial performance of most of these companies is not easy to determine, because they do not publicly issue their financial statements, especially those that are not publicly traded. However, these firms are registering impressive financial performance based on their increased investments in expansion projects in the local market.
Market suppliers
The market suppliers happen to be the same competitors discussed in the section above. SSCL will specialize in the installation and maintenance of the PV systems. This means that it will need to purchase the equipment from the manufacturers and suppliers in the local market. The market has so many suppliers of the needed equipment for the installation of PV systems.
Some of these suppliers are currently eating into the market share of SSCL by offering the client’s installation services. This firm may need to develop a strategic partnership with these suppliers and manufacturers to ensure that the work of installation and maintenance is handed over to SSCL. This strategy will not only reduce the current competition but also enable this company to develop a sustainable relationship with these suppliers. It will be in a position to get the supplies needed in time and regularly.
Internal Analysis
The external environmental analysis of the Saudi market and the industry analysis clearly show what Saudi Solar Center Limited should expect once it starts its operations. However, it is important to note that the market forces discussed above can only be managed if this firm has internal structures, systems, and effective strategies. In this section, the analysis will narrow down to the internal forces within the firm that will have direct impacts on its operations in the market. The analysis of the internal environment will help determine how well this firm will be capable of competing favorably with market rivals within the Saudi Arabian market.
Core Business: Products Offered by the Company
SSCL is a startup company that will be offering PV installation maintenance services to customers across the country, especially in the major cities of Riyadh, Jeddah, Medina, Mecca, and Khamis Mushait. It will provide electricity consumers in the country with a monthly bill-saving solution through installing a PV system on their facilities, such as on rooftop, or ground-mounted. With its headquarters in Riyadh, this firm will coordinate very closely with the major suppliers of PV systems and real estate developers.
Working with developers will help ensure that new homes being constructed in these urban centers are fully fitted with PV systems to help improve energy efficiency for the owners. The firm will also scout for homes that still lack PV systems but whose owners are willing to embrace the use of green energy. Once the system is installed, SSCL will also be responsible for the installation services.
Clients will pay for the installation services offered by the company. The management also intends to work with the government agencies and environmental conservation agencies to promote the use of green energy both at the domestic and commercial levels. Although the firm’s current core business is to offer PV installation and maintenance services, new products may be offered to the market at a future date. One of the expansion plans will be to produce and install its PV systems shortly.
This firm will work with its clients to conduct electricity consumption assessments for a year and determine the consumption behavior for each client. It will then propose an appropriate solution based on the needs of the clients to cut down the cost of monthly electricity bills. To each client, the company will explain the nature of the PV system needed to help them embrace self-production and the consumption of renewable energy. The firm is aware of its strained human resources and the fact that it can sometimes be overstretched.
As such, it will provide an online assessment and system evaluation for its customers so that they can understand the performance of their system without needing the technicians to visit their homes. The service will be critical when the size of the customer base starts to grow. SSCL will also look for the incentives that the government can introduce to promote the production and consumption of individual consumers.
Germany has the best model that can be used and it would be important for the Saudi government to embrace it. In this model, individuals who use PV systems to produce energy can sell excess power to the national grid. The Saudi Electricity Company should come up with an acceptable way of calculating the value of power that individuals feed to the national grid and the best way of compensating them.
Core Competencies
The market has several challenges, and this firm will rely on its core competencies to achieve the desired success in the market. The analysis of the firm’s core competencies can be analyzed using the SWOT analysis model. The main strength of SSCL is its team of technocrats, who not only understand how to install and maintain the PV system but also know how to maximize power production from PV systems.
It is expected that the skilled human resources will give this film an edge over its rivals. Customers will be thrilled by the services offered by the firm, and that may offer it a competitive strength over its market rivals. The small size of this firm may also act as a strength in the current dynamic environment. It enables this firm to change easily with the emerging forces in the market. Flexibility is an important characteristic that a firm should have in the current dynamic business environment.
The firm has several weaknesses that must be dealt with to ensure that its operations run smoothly in the market. Limited experience is the biggest challenge that the firm will have to deal with when it starts its operations. A number of those at the top leadership of this firm have worked in other energy companies. However, this is a new company that is going to operate in a very special market niche, and experience is going to be a major concern. SSCL is a private company, which means that the initial capital will come from the owners.
Although the green energy industry is heavily subsidized by the government, the team will have to fully fund its initial projects. As a new company, financial institutions may be reluctant to extend loans to it, which may create a financial problem in its initial operations. The firm has yet to develop an organizational culture that will define how employees of this firm relate among themselves and with their customers. This creates unpredictability, where the management cannot be sure how their employees handle clients once they are in the field.
The market offers opportunities that the company should take advantage of as it starts its operations. The growing middle class in Saudi Arabia means that the number of those who can afford the products of this company is increasing. An increase in the size of the market should translate to the expansion of a firm’s market share if it has effective production and marketing strategies. Saudi society is increasingly becoming sensitive to issues about environmental conservation. Being one of the world’s largest producers of oil, the country knows the consequences of failing to conserve the environment when exploiting natural resources.
As such, many people in the country have embraced the use of alternative sources of energy. The increasing level of education among the middle class has also helped in making them more supportive of the alternative sources of energy. They are likely going to support the idea of the installation of PV systems not only to reduce their monthly energy bills but also to conserve the precious environment. The government subsidy in the renewable energy sector is another opportunity that may help this firm to achieve sustainability in the market. A recent report shows that firms in the renewable energy sector are currently enjoying subsidies as the government tries to promote the use of renewable energy for domestic and commercial purposes.
The management of SSCL must understand that the market has forces that will pose threats to the firm’s survival. The biggest threat is the emerging competition in this industry. Currently, the level of competition is moderate. However, this is expected to change shortly as the use of solar energy continues to be popular in the market. Managing the growing market competition will be a critical tool in helping this firm to remain sustainable in the market. The growing popularity of other alternative sources of energy, such as wind and biomass, may also reduce the popularity of solar power use, and this may affect the market size. This is considered a threat because currently, SSCL is not offering services in these other areas.
The SWOT analysis identifies the strengths, weaknesses, opportunities, and threats that a firm faces in the market. The main reason for conducting this scan is to find a way in which a firm can use its strengths to maximize market opportunities and overcome its weaknesses and threats. The following SWOT matrix can help in explaining how SSCL can do that. Based on the risk analysis done above, the table below shows the mitigation measures that this company will need to take to protect itself in the market.
Table 1: SWOT matrix
The table above suggests what this firm should do to help it use its strengths to maximize the market opportunities, manage its weaknesses, and deal with the external threats.
Key Functions
SSCL will have four distinct departments that will perform different functions to ensure that the firm runs normally. The departments include marketing, finance, operations, and human resources. It is important to look at how each of these departments will be operating.
Marketing
The marketing department will be one of the most important departments of this firm. This department will be responsible for ensuring that clients are located and convinced to purchase the products of the company. To do this, promotional campaigns will be important. The department will develop television commercials that will be run on major television stations in the country. It will also use newspapers to promote the firm’s brand and products in the market. According to recent studies, social media marketing is increasingly becoming a popular way of reaching out to customers.
In Saudi Arabia, most of the young adults and the middle-aged people use Twitter and Facebook, something that was very rare when social media started emerging as a means of communication about ten years ago. This department will use Facebook, Twitter, and YouTube to promote the brand in the market. It will also reach out to organizational buyers such as major real estate developers in Riyadh, Medina, and other major cities so that the firm can win contracts to install and maintain PV systems. The department will be responsible for conducting regular market research in the country to understand people’s changing tastes and preferences. It will work closely with other departments to ensure that the firm’s operations and services are in line with what customers expect in the market.
Finance
This is a very sensitive department of this company, especially at this early stage of operations where resources are very limited but financial needs are many. The department will be responsible for careful planning of the firm’s finances and allocation of the resources to each of the departments based on the needs and priority. It will require this department to coordinate closely with all the other departments to understand their financial needs and prioritize them. The finance department will also be responsible for sourcing for external funds.
It will approach banks for funds and request government subsidies to help meet the financial needs of various departments. New companies always have a big challenge in accessing credit from financial institutions because their sustainability is not guaranteed. The officers in this department will have the difficult task of getting the needed resources despite such negative reputations associated with new firms. It will also manage the revenues generated from the operations of the company.
Operations (organization and processes)
The operations department will be responsible for two main factions. The first function will be to manage the supplies. The officers in this department will identify the suppliers that can offer this company high-quality PV systems at the best price possible. The department will ensure that there is a regular supply of the PV system kits as per the demand the firm will be handling at that time.
The second function will be the actual installation and maintenance of the systems. Once the systems are purchased, the team will coordinate with the marketing officers, who will hand over the clients to them. The operations department will install the PV systems as per the needs of the customers. Once the installation has been made, the department will work closely with the marketing department to know when and where repair and maintenance services are needed.
Human resources
The human resources department will also play a critical role in the operations of this firm. Currently, several skilled employees have already been identified. However, the firm will need to hire more skilled, semi-skilled, and unskilled employees to work in different areas within the company. Skilled and semi-skilled employees will be needed in the field to do the installation and repair.
They will also be needed in the office as strategists, accountants, secretaries, and finance officers, among other areas. Unskilled officers will be needed for functions such as cleaning the compound and offices of the firm. It is the responsibility of the human resources department to ensure that all the needed human resources are made available. The department will need to work closely with other departments to understand the nature of the skills needed.
Key Resources Required
SSCL will need resources to operate in the renewable energy market. Human resources will be very important because this is an area of business where special skills will be needed. Engineers and technicians will be needed to help in normal operations. Experts in accounting, finance, and supply management will also be needed. As mentioned in the section above, the firm will also need to hire semi-skilled and unskilled employees to work in different departments. Finances will also be required to facilitate the operations of the company.
The rent for the premises of the firm, salaries for the employees, payment for the supplies, and fee for transportation will have to be paid on time to enable the firm to operate efficiently. The marketing department will need to conduct regular market research to ensure that the operations of the company are in line with market expectations. Conducting this researches will require funds from the company.
Fixtures, fittings, and other consumables needed at the office and in the field will also have to be purchased. The experience will also be considered a resource that will help in the firm’s success. Renewable energy is a sector that did not attract a high number of experts in the past. This means that having people with vast experience in this field is in itself a resource that can give this firm a competitive advantage over its market rivals. These resources, when combined, will enable this firm to operate sustainably in the market and compete favorably against its market rivals.
Developing Organizational Culture
According to a recent study, it is not easy to manage employees’ actions and predict what they will do once they are in the market without a clear organizational culture. Developing an organizational culture will, therefore, be very important for this firm as it starts its operations in the Saudi market. The organizational culture must be based on the popular culture within the society and the unique values of the firm as stated in the mission and vision statement. Our culture will emphasize the need to meet the expectations of the customers in the best way possible.
It will be based on the premise that the customer is always the king. The culture will require employees to respond to customers’ needs and complaints as efficiently as possible. The firm will also emphasize the culture of communication. Employees must learn to communicate with their superiors and among themselves. Whenever they are handling a major complaint or an issue that may have significant impacts on the firm, they have to consult their immediate superiors so that consent or advice can be given on how to act.
The culture will avoid erratic behavior and unpredictability among the employees. Given that our culture recognizes the value of communication, the firm will embrace the concept of an open-door policy. Under this concept, junior employees will be allowed to consult the senior officers without following the chain of command in case they have an important issue they want to share.
It is believed that this culture will promote creativity and innovation within the firm. Whenever employees feel that they have come up with an idea that can transform the company, they are free to share their idea with the senior employees so that their idea can be transformed into practical strategies. The top management unit will borrow the best practices from successful firms within Saudi Arabia and other countries to help improve our culture. The firm will strive to be unique in this renewable energy market.
Assessment of the Available Strategic Options
When entering a market, some studies show that it is important to come up with an appropriate strategic option based on market forces. The detailed analysis of the external and internal environmental factors makes it possible to come up with an appropriate strategy in this market. SSCL may choose from an array of strategies. However, in this section, the focus will be given to the two most appropriate strategies based on the analysis conducted above. The following are the proposed strategic options.
Proposed Strategy 1: Offensive Strategy
The offensive strategy is a very bold approach where a firm uses direct and indirect attacks on the market share of the rival firms. This is a popular strategy when a firm is faced with stiff market competition from rivals that offer similar products. When using this strategy, SSCL will source for the PV systems from the suppliers and look for its customers who need the system to be installed in their houses. The relationship between the firm and the supplier ends after the purchase. SSCL will directly compete for the market share with PV suppliers that also offer installation and maintenance services.
The biggest advantage of this strategy is that it allows the firm to operate independently without any form of control by other firms. The freedom enjoyed using this strategy means that SSCL will define how to deliver quality services to the customers without having to observe the conditions of another firm. However, it is important to note that this is a dangerous strategy for a firm that is just starting its operations in the market. The strategy can provoke other rival firms to come up with counter-offensive strategies that will make the market less favorable for the new firm. The established firms may opt to use a pricing strategy as a way of edging out new market entrants. Such a strategy may have serious implications for this new company.
Required business model
The business model will put SSCL in direct competition with market rivals. The firm will have to fight for the market share by eating into the market share of the market rivals and protecting its market share from the current and future rivals. The figure below shows how this model works.
As shown in the model above, the market rivals will be fighting for a share of the market, which will put them into a confrontation. Under such circumstances, it will require this firm to have effective competitive strategies that can enable it to edge out its rivals. It must use its core competencies to create a competitive advantage in the market.
Evaluation of its competitive advantage
Using an offensive strategy will offer SSCL a competitive strategy over its market rivals if it can base it on the premise that its highly skilled workforce will offer unique value to the customers. Currently, most of the companies offering the same services are often very slow when they are called upon to offer maintenance services.
This firm will be presented as one that specializes in installation and maintenance services and, as such, will always respond positively to clients who need either installation or maintenance services. The strategy will also offer this company a competitive advantage in terms of the manufacturers it will be selected when purchasing the PV system. Operating independently will allow it to choose PV system brands that customers prefer.
Proposed Strategy 2: Strategic Partnership
The second option would be a strategic partnership, where this firm will work with other firms to achieve mutual benefits. According to one of the studies, using strategic partnership is a very important strategy for a new firm that is just getting into the market. SSCL is a startup company that seeks to be a dominant player in the renewable energy market within Saudi Arabia. When using this strategy, the company will work closely with PV system manufacturers and suppliers within the country.
It will agree with these companies so that they can contract this firm for the services of installation and maintenance of the system. If the supplier has an agreement with the customers that entitles clients to free installation when they purchase the system from them, then the two firms will reach an agreement about the fee that SSCL will charge the supplier for the installation. SSCL will also inform the client that in case of maintenance, it can do the job at a reasonable fee. The primary aim of the partnership is to ensure that suppliers and manufacturers do not offer installation services.
The partnership agreement will dictate that SSCL will be the firm responsible for the installation. This strategy will significantly eliminate competition in the market. When using this strategy, this firm will be working with other firms to ensure that they receive mutual benefits. The model of a strategic partnership that demonstrates a coordinated effort of two firms to achieve a common goal. SSCL and its strategic partner will make a shared effort toward achieving a common goal. The effort made by one partner helps the other. If the manufacturer improves the quality of its products, SSCL will benefit in terms of improved customer satisfaction and loyalty. The manufacturer also benefits when SSCL delivers quality services to the clients.
Evaluation of its competitive advantage
The biggest advantage of this strategy is that it will transform the currently formidable competitors of SSCL into strategic partners. These established firms will view SSCL as a partner that will help them in the installation and maintenance services so that they can concentrate on manufacturing quality products. Instead of being a serious threat, these firms will be ready to help SSCL to achieve success in this market. The firm will enjoy operating in a supportive environment where it can easily coordinate with other firms for a common goal of meeting the needs of the clients in the best way possible.
Strategic Sweet Spot
According to a recent report, the strategic sweet spot of a company is “where it meets customers’ needs in a way that rivals can’t, given the context in which it competes.” Identifying the strategic sweet spot will enable SSCL to come up with a differentiation strategy that will make its products unique in the market. By taking advantage of the strategic sweet spot, this firm will ensure that its customers are aware of the unique value of its services that makes them superior to what competitors offer in the market.
Based on the environmental scan conducted in the sections above, the targeted customers are always keen on identifying the products that offer them unique value. As such, this firm will remind them that it is offering them the unique value that they desire every time they offer them PV installation and maintenance services. The figure below shows how this firm can identify the strategic sweet spot.
Key Performance Indicators
When SSCL starts its operations, the management will need the right metrics to determine if the firm is moving in the right direction. It will need to know if the current performance of the firm is in line with the market expectations and the set goals and objectives. The top managers and the shareholders will use KPI to make decisions on how to approach the emerging market forces based on the performance of the firm within a given period. The performance indicators of this firm will be deeply entrenched in its objectives.
Therefore, the first performance indicator will be to determine if the firm has gained customers’ loyalty by delivering high-quality products. The second indicator will be to determine if the firm has created a platform that can facilitate client–firm communication efficiently. The management will also need to determine if the firm’s core competencies in service delivery are improving. Finally, the management will determine if this firm has developed a working relationship with its business partners, government agencies, and environmental groups to achieve mutual growth. If it is determined that there is a weakness in any of these areas, then the management will need to find a way to address the weakness.
Potential Financial Statement of the Proposal
SSCL intends to use the second strategy of developing strategic partnerships with some of the top manufacturers and suppliers of the PV system in Saudi Arabia. It is necessary to look at the potential financial statement of the proposal. As shown in the Profit and Loss Account, the firm will suffer a loss of SAR 332,376 in its first year of operations. However, the subsequent four years will see it make impressive profits, so the idea is viable hence worth implementing. The balance sheet also shows that this firm’s assets will significantly increase within the first five years of its operation. The ROI and ROCE Analyses also strongly suggest that this startup company is going to make impressive returns if the strategies suggested above are implemented appropriately. Detailed financial analysis and statements are shown in the appendix.
Model Implementation
Implementation of a model is one of the most challenging processes when starting a new firm. This involves coming up with activities that should be carried out by various departments based on the chosen business model. The firm intends to work very closely with strategic partners to ensure that it benefits from their experience in the market and the superiority of their brands. In this section, the focus will be on determining how the model will be executed and how issues about change management will be approached once the firm starts its operations.
Execution Plan
In this model, the company will identify the top manufacturers and suppliers of PV systems within Saudi Arabia and make an official request for partnership. The procurement manager will sign a contract on behalf of the firm stating that SSCL will be the primary installation and maintenance company for all the PV systems sold by the supplier. The deal will mean that all the clients of the supplier or manufacturer will be handed over to SSCL for installation. The marketing department, on the other hand, will directly look for clients that want to install PV systems. The marketing department will coordinate with the procurement department so that the necessary equipment can be obtained for installation. The other departments will work closely with this department to ensure that the set objectives are achieved. The table below shows the scheduled activities that will be carried out when the firm starts its operations.
It is important to note that the activities are shown in the table above primarily focus on promoting the firm’s brand, developing strategic partnerships with specific suppliers, identifying and forming relationships with clients, delivery of the service in installation, and maintenance of the PV system. There are other internal operational activities in the finance, human resources, and marketing departments that are not covered in the schedule above. However, they closely align with the above activities. It is also important to note that the activities are cyclic, which means that they will be performed continually as long as the firm is operational.
Strategy map
It is important to look at the strategy map based on the model chosen. The following figure shows the strategy map that will be used in defining the operations of the company.
As shown in the map above, the ultimate aim of this for-profit company will be to maximize shareholders’ value. The firm’s financial performance will be a critical issue as the management strives to meet the expectation of the investors. However, the maximization of shareholders’ value requires this firm to meet the customers’ needs. The services must exceed the customers’ expectations to inspire their loyalty.
Meeting customers’ needs depends on internal business processes. It is at this level where a strategic partnership with the manufacturers and suppliers becomes very critical. Operational activities must be done efficiently to ensure that there is quality delivery of services. Efficiency in internal business processes requires learning and growth. The firm will need to improve employees’ skills through regular training. It will also need to identify partners with popular brands in the market.
Performance scorecards
Having performance scorecards may help in determining how well the firm is moving toward its set objectives. The performance scorecard can be developed to look at various aspects of the firm’s operations. In this report, the focus will be to determine the financial performance of the firm. The shareholders of this new company will be interested in knowing how their money will be spent and, most importantly, how they will get the returns on their investment.
As shown in the above figure, the first year this firm may suffer a loss because of the heavy capital investment that will be needed. However, the subsequent years will see it increase its profitability consistently.
Change Management and Change Leadership
Change is a force that a firm cannot ignore, and SSCL will be keen on managing it to align its operations with the changing market forces. The renewable energy sector is attracting massive attention from scientists, and it is expected that some developmental changes are going to be witnessed. The leadership of this firm must be ready to manage change. It must be capable of preparing its employees to embrace changes that may occur in the firm’s operations. The following model will be useful when managing change.
As shown in the above model, when managing change, the leaders must start by creating the right environment for change, which in this case is referred to as unfreezing. This involves preparing all the stakeholders for the impending change. The second stage involves introducing change. The leaders are expected to support a change to the desired level. The final stage is refreezing where the leaders are expected to anchor change by reinforcing it through training and other strategies.
Conclusion and Recommendations
The Kingdom of Saudi Arabia is one of the leading exporters of fossil fuels in the world. However, the country has been promoting self-production and consumption of renewable energy as a way of reducing overreliance on fossil fuels and hydroelectric power. Saudi Solar Company Limited is a startup company that seeks to take advantage of the growing opportunity in the renewable energy sector. The weather in this country (regular sunshine throughout the year) has made solar energy very popular. SSCL has targeted a special niche in the market where it will be offering the installation and maintenance services of PV systems to residential, commercial, industrial, and governmental entities at a fee.
The management has opted to use a strategic partnership based on the company’s capabilities in the market. This strategy is critical at this early developmental stage of the firm because it will not only benefit from the strength of the partner’s brand but also eliminate competition in the market. The firm may choose other strategic options, such as offensive strategy, but they may have devastating financial consequences. It is prudent to select a strategy that would make the market forces more favorable to this startup company.
Recommendations
The firm has opted to use a strategic partnership in the market when it begins its operations. As such, the following recommendations should be taken into consideration.
- When selecting strategic partners, care should be taken to ensure that this new firm is not exploited by the partner through unfair business contracts.
- As SSCL enjoys the benefits of operating under the umbrella of strong brands, it should not forget to promote its brand.
- The firm should invest in market research and training of its employees to help improve its service delivery in the renewable energy market.
Works Cited
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Appendices
Financial Analysis
Appendix 1: Assumptions
- All figures are in SAR (Saudi Riyal).
- This pro forma income sheet and balance sheet are prepared in contribution format.
- Contribution income and balance sheet statements break costs down the line items in these statements.
- Salaries will vary according to sales, and the company may hire or fire depending on business volumes.
Appendix 2: Profit and Loss Analysis
Appendix 3: Balance Sheet Analysis
Appendix 4: Cash Flow Analysis
Appendix 5: NPV Analysis
With a positive NPV of SAR 503, 711, the business project is economically viable and should be undertaken.
Appendix 6: ROI Analysis
Return on Investment (ROI) indicates the profitability of the business investment. It is computed by dividing the company’s net profit by its total assets for each of the five years. Net profit is derived from the profit and loss account, while total asset figures are derived from the balance sheet. The table below provides the summary of the results.
Based on the table above, ROI for the business is 24.41% in year 2 and improves consistently over the next three years to reach 32.93% in year 5.
Appendix 7: ROCE Analysis
Return on capital employed (ROCE) is a measure of profitability that indicates the efficiency of the business in generating profits from the capital invested. In particular, it indicates how many Saudi riyals in profit each that the capital generates. ROCE = Net operating profit/ Capital employed, whereby capital employed equals to Total assets net current liabilities. From the profit and loss account, we get the net profit figures for the five years. Similarly, from the balance sheet, the current liabilities for the five years are deducted from the Total assets figures. The Table below summarizes the results and the ROCE values for the five-year period.
Due to negative net income in the first year of operation, the ROCE for the first year is negative. However, from year 2, the ROCE is positive. For example, in year 2, for each Saudi riyal invested in capital employed, the company generates 0.25 cents of profit. The ROCE improves constantly year after year to reach 0.33 cents in the fifth year of operation.