M&A Integration

Case: Balancing the Power Equation:

Suzlon Energy Limited
 M&A Integration
Dealing with acquisitions of
resources and liabilities and
integration of various
processes is critical for the
survival of the new
organization
Innovating
Has the potential to enhance
shareholder’s value by
creating cost advantages, Managing of multiple
increase in revenue, increase cultures
in market power and/or
intangible synergies, etc.
Managing a complex change
Building new teams
process
 Successful and Quick Integration
 Focus on obtaining value early on: Big
opportunities with little organizational risk should
be of high priority
When to  Implement phased integration approach
integrate? according to business priorities

 The extent of acquisition  Focus on the most critical areas,

required depends on How much Successful do a good job on the basics
factors such as the overall What to  Assess what has been acquired
to and Quick
strategy, financial, integrate? and select the most essential
integrate? Integration functions
business and process
goals

How  Do not prolong the “tug-of-war” in integration. Selecting

would we best of existing systems and processes from either
company might not be most effective
integrate?  Choice of which system/processes to use depends on
factors such as size of acquired company, performance
level, etc.
 Challenges in M&A Integration
Failure to align leadership,
management, and
supervisory practices with
the new combination's core
values
Absence or lack of guidance
about managing the
"people factor" in order to
maintain productivity and
job satisfaction
Failure to facilitate multi-
Failure to redesign core
directional knowledge
work processes in a way
transfer and organizational
that involves the
learning within the new
employees
combination

Failure in the selection of

Lack of global Failure to re-conceptualize
appropriate personnel for
cross-border and cross-unit competencies in key performance management Planning
managers and supervisors and career
assignments

Failure to align differing Failure to facilitate the

Slow decision making
benefits and compensation productivity of "virtual" teams
process
packages geographically dispersed

Failure to provide coaching

or mentoring to their
subordinates
 Effective M&A Integration

Demonstrating a
Focusing on
committed and Building teams and
financial and Remaining flexible
open-minded work units
strategic objectives
leadership

Assimilating new Sharing information

Providing for
people and Getting employees and effecting
capable and
achieving cultural to embrace change corporate
motivated teams
integration understanding

Combining
Effecting and corporate functions
Setting priorities Measuring results
cooperation and internal
processes and
 Integration Approaches
Development of a new
Communication of the new management structure for
Implementation of a new Bringing together formerly
strategic objectives and the the new, larger organization
shared corporate culture and separate units from both
new vision of the merged especially overcoming of
management culture former organizations
organization leadership problems in very
large units

Harmonization of Overcoming of staff’s

management compensation
and management incentive
systems
Overcoming of language
barriers and country specific
cultural differences
suspiciousness of the other Filling of management
organization - ‘Us vs. Them’ positions
syndrome

Knowledge transfer among Maintenance of customer

Allocation of responsibilities units that are to be relationships during
integrated integration phase
 Factors Facilitating Integration

Mission and Ensured Selecting the

vision communication right leader

Capturing value
Welcoming
Teambuilding from different
new culture
sources
 Sources of Value

Growth-Oriented Efficiency-Oriented Other Sources of Value

New products, service offerings, markets, Financial value such as balance sheet items,
Integrated supply chain
customer segments, and distribution channels taxes, etc.

Leverage procurement volume (product and Optimized programs and policies e.g. benefits
Enhanced market presence and market capture
non-product) programs

Enhanced product development efficiency, i.e., Rationalization and/or elimination of special

Production footprint optimization
leveraged R & D, internal best practices programs, projects, etc.

Combined technologies or capabilities Facility optimization Additional alliances or relationships

Leveraged sales force Vertical integration, de-integration

Increased capture of the value chain Distribution channel optimization

Sales force optimization

Headquarters consolidation

Support function consolidation like human

resources, finance, IT, etc.
 Integration Approaches
Need for Interdependence
Low • Preservation
High
• Key issue is to keep the source of the benefits or
Need for Autonomy

capabilities intact.
High • Manage operations at arms length (except where
Preservation Symbiosis interdependencies such as financial risk sharing and
general management capability transfer are needed)
• Continued boundary protection

• Holding
• No intention of integrating and creating value through
Low Holding Absorption anything other than financial transfers or risk sharing
• Holding company (unrelated-diversified) strategy

Symbiosis • Absorption
Most complex • Integration implies a full consolidation of all
Issue is to transfer capabilities but maintain necessary autonomy operations, organization and culture of the two
Start process like a preservation firms
Premium versus patience (costs are considerable but it takes time to•
Key issue is timing as opposed to how much
develop)
integration should take place
Clear understanding regarding strategic objectives, time horizons, and
procedures
• Won’t see benefits until this is accomplished.
Shield acquired firm from uncontrolled interactions
Set up gatekeeper function to control interactions between acquired
and parent units that will be collaborating
 Strategies for Post Merger Integration

Use best practices to drive the

Ensure that the transition
Provide visible leadership from Ensure that goals are clearly Manage change from the creation of the new
follows a structured and
top management defined and progress is tracked outset organization and its business
phased approach
processes

Focus on adding value to the

Use cross-functional teams to
drive merger
Recognize that a merger is
Ensure that communication is enterprise, while avoiding Avoid the compromises that
fraught with risk - avoid taking
well planned and coordinated those actions that can destroy result from playing to politics
too much for granted
it

The "cultural migration" to the

Concentrate on key employee
retention
desired organizational
Identify the leadership who Do not leave culture clashes IT systems are frequently
behaviour is best achieved by
will make the merger work  left unchecked incompatible
visible example along with
continuous reinforcement

Do not miss revenue

Recognize the importance of
the company's customers and
its own people
Focus on the 80/20 rule
Excessive focus on perfection is
Avoid over-analysis
generally ineffective
enhancement opportunities
that come through cross-selling
and the development of new
products and services for the
expanded customer base
Factors influencing Post Merger Growth
Strategies
Reliable
Effective human Social and cultural environment for
resource strategies integration employees and
customers

Well informed Manage

Change agent
stakeholders expectations

Detailed market
Effective schedule
research
Characteristics of Most Successful M&As
Cross-functional
Permanent integration team
M&A Manual
integration staff with members
from both firms

Communication
Pre-merger Checklists of
strategies that
cultural potential problem
match the M&A
assessments areas
motive

Both formal and Consistency

informal Use of professional between initial
communication communicators promises and
tactics used implementations
Sorting the Point of Action During Due
Diligence….

Dead

Emergency

Urgent

Non-Urgent
 Merger Motivation Theories

Efficiency Monopoly Raider

Process and
Empire
Valuation disturbance
building
theory
 IE Matrix
• The IE matrix is a strategic
management tool that allows a firm to
formulate strategy based on the
evaluation of external and internal
factors
• The IE matrix combines scores from the
external factor evaluation (EFE) and
internal factor evaluation (IFE)
matrices, with the IFE score plotted on
the X-axis and the EFE score on the Y-
axis
• The firms’ strengths and weaknesses
are then identified and used for the IFE
score, while opportunities and threats
are used for the EFE score
• Each factor is weighted and, based on
the firm’s performance and its present
condition, a rating is given
• By multiplying the weight and rating, a
weighted score is then calculated for
internal factors and external factors
• Finally, based on where the two scores
meet, the strategy is appropriately
formulated
• The IE matrix is used to evaluate the
company’s current strategy in response
to external and internal factors and
also to formulate a new company
strategy based on internal and external
factors, assessing broad direction for
further strategy formulation or
planning
IF-EF Matrix
IF-EF Score
Parameters for Evaluation of a M&A
Capabilities Transfer Model For Breakthrough Phase
After- The – Deal Custodial Capabilities
Model For Continuing Integration Implementation Appraisal And Recalibration
Stages Of An Integration Implementation
Ratings Of The Leadership Regarding Addressing M&A Cultural Integration
The Discover- Invent- Deliver Approach To Cultural Integration
Before The Social Interaction Taking Place.
Social Interaction Involves Providing Knowledge To Another. Person Ab
Provides Fact K3 To Person Aa.
After The Social Interaction Taking Place.
Pre- Merger Agent- Task- Knowledge Meta – Network Representation For A Single
Actor In An Organization. Legend: Squares Are Tasks, Circles Are Knowledge
Pre- Merger Agent- Task- Knowledge Meta – Network Representation For A Two
Actors In A Organization. Legend: Squares Are Tasks, Circles Are Knowledge
Computationally Modeling The Effect Of Organizational Complexity
Dependent Variables For Organization Performance Experiment
Average Relative Performance According To Total Number Of Actors in Post-
Merger Organization (NewCo)
Average Relative Performance According To Total Number Of Workgroups in
The Organization (Same Parameter Settings In Alpha, Beta And Thus NewCo)
Average Relative Performance According To Relative Number Of Actors In A
Workgroup (Beta- To- Alpha)
Standard Deviation Of Relative Performance According To Relative Number
Of Actors In A Workgroup ( Beta- To- Alpha)
Descriptive Statistics
Correlation matrix for target variables
Correlation Matrix
Average monthly abnormal returns to the acquirers with announcement year of 1988
Average monthly abnormal returns to the acquirers with announcement year of 1989
Average monthly abnormal returns to the acquirers with announcement year of 1990
Average monthly abnormal returns to the acquirers with announcement year of
1991
Average monthly abnormal returns to the pooled acquirers with announcement
years in 1988-1991
Test Of Median Equality For The 60-month Average Buy-and-hold Abnormal Returns
Descriptive Statistics For The Average Monthly Buy And Hold Abnormal
Returns (BHAR)
Ratings Of Leadership Regarding Retaining And Rerecruiting Acquired
Companies’ Key Management And Employees
The Rerecruitment Needs Pyramid
Rerecruitment Matrix
Retention And Rerecruitment Options
Retention And Rerecruitment Options, Cont’d
Understanding M&As Emotions
Managerial Influences On Employees’ Emotions
The Influence Of Social Identity On M&A Outcomes
Development Of A Conceptual Framework
Conceptual Framework
‘Temperature Curve’: A Respondent’s Longitudinal Perspective
Combined ‘temperature curves’
Top Managers’ Perception Of Employees’ ‘Temperature Curves’
Middle Managers ‘Temperature Curves’
Employees ‘Temperature Curves’
Combined ‘Temperature Curves’ From Respondents Of Company X
Combined ‘Temperature Curves’ From Respondents Of Company Y
Emotions And Cognition-related Affect Terms Reported In The Empirical Study
Emotions And Cognition-related Affect Terms Reported In The Empirical Study
The Governance Structure For Transition
The Accountability Structure In Each Period
Integration Roles For The HR Function
The “ Making Strategy Work” Model
Shifting Trends In Japanese Compensation Through The 1990s
Template for the ‘Temperature Curve’
M&A volume, U.S. and U.S. Cross – Border Transactions, 2000-2006
Deals Then And Now
The Deal Flow Model
Deal Flow Model
Strategic Integration Planning Analysis
Expanded Components of Due Diligence
Due Diligence as a Iterative Process
Process Model For Cultural Due- Diligence Analysis
Stage At Which HR Becomes Involved In The Deal Process
Coordinating HR Into the Due-Diligence Process
Best – Practices Baseline Model
Sample Issues Related To Human Capital
What Integration Managers Do
Viewing Merger Integration As A Process
Staffing Strategy Sequencing
Integration Planning: A Developing And Interactive Process Across
All Preacquisition Phases And Core Capabilities
A Business Operating Model Allowing For The Gradual Introduction Of
Newly Acquired Business Units
Where Organizational Activities Take Place In The Front, Middle, And Back Courts
Typical Staff Selection Process
Staff Selection Process After Acquiring Another Company:
Managers Should Consult Their Peers
Integration Phase: Activity Overview
IT Integration Detail Plan: Example
Systems Integration Project Charter: Example
Integration Project Management Framework: Example
M&A Integration Steering Group Organization
Four Areas Of Measurement
Development Process For Measuring The Newco Organization’s Basic Operations
Merger Integration Scorecard
Merger Integration Scorecard
Monthly Scorecard For Synergy Performance
Cumulative Synergy Chart
Application Of Leadership To The M&A Process
Six-dimension Integrative Model Of Leadership
Joining Different Assets Of Two Companies
The Knowledge of Capital Model
Market Demands
Descriptive Information Regarding Case Studies
Data Description
Conceptual Framework
Case Comparison
THE WHEEL OF FORTUNE
Time For An Upgrade
Integration Approaches
Critical Process Dimensions Of Each Integration Approach
Profile Of Integration Approaches Used For Content Analysis
ANOVA Results Of Difference In Process Dimensions Across Integration Approaches
Composition Of Sample And Distribution Across Decades
Research Focus in M&A Research
Perspective In Performance Measures
Temporal Horizons In Performance Measures
Operational Definitions Of Performance
Operational Definitions Of Innovative Performance, Indicators And Time
Lags
Extended Troubled M&A Integrations
Extended Troubled M&A Integrations, cont’d
Percentage Of Companies In Need Of Merger Repair
Merger Integration Result Assessment
Merger Integration Process Assessment
Merger Integration Process Assessment, cont’d
The Four Stages Of Acquisition Capabilities
Common Planning Model For The Integration’s Infrastructure
Task Force Planning Process
Process For Weekly Updates
Calibrate Priority Projects To Integration Milestones
High Level Summary Timeline- Example 1
High Level Summary Timeline- Example 2
Sample Consolidation Project Plan
List Of Oversight Vehicles
Continual Need For Post-deal Review
Post - Merger Changes
Post- Integration Review Phase: Activity Overview
Learning From Experience
PURCHASING
P/L Statement And Balance Sheet For PSM
Number Of Mergers Or Acquisitions Conducted Since 2000
Recent Mergers Or Acquisitions Are Done Mainly Within Industries
Rating Of Companies’ Overall Integration Efforts
“Communication” And “Leadership And Decision Making” Are The Integration Areas
Most Needing Improvement
Typical Time Spent For Full Integration Of Acquired Companies’ People,
Processes, And Systems
Percentage Of Companies In Need Of Merger Repair
ACCOUNTING DEPARTMENT INFORMATION SYSTEM REQUIREMENT
TRANSITION COST ESTIMATE
TRANSITION COST ESTIMATE
TRANSITION TIMELINE
TRANSITION TIMELINE
Growth Rates In U.S. Workforce
Age- Related Demographic Changes In The U.S. Workforce
Effective Communications Matrix: Finance Function
Staffing Calender Matrix
Streamlined Staffing Process Model
Comprehensive Staffing Process Model
Estimated Major Bank IT Spend-levels ($ Billions)
Alignment Of Business Strategy, IT Strategy, And Merger Strategy
Information Technology Integration Schematic
Mapping IT Integration Requirements, Products, And Markets
Comparing IT Integration In Merger Situation
Schematic Of Principal Drivers Of IT Integration
Potential Resource Requirements in IT Integration
Mechanisms for implementing buybacks
Structure – Culture – Incentives – People
Model
 Post Acquisition Results

Over 50% of mergers failed to reach goals 17% added value

set by top management

53% destroyed value

Deal costs were recovered within 10
years in only 23% of all transactions

83% of M&A were unsuccessful in

producing any benefit to shareholders
In almost 60% of all cross-border
transactions, the acquiring company
did not earn back its cost of capital
1/3rd split up in 5 years time

50% of transactions result in same or

lower profits 90% fail to live up to financial expectations
 M&A Integration
Dealing with acquisitions of
resources and liabilities and
integration of various
processes is critical for the
survival of the new
organization
Innovating
Has the potential to enhance
shareholder’s value by
creating cost advantages, Managing of multiple
increase in revenue, increase cultures
in market power and/or
intangible synergies, etc.
Managing a complex change
Building new teams
process
 Successful and Quick Integration
 Focus on obtaining value early on: Big
opportunities with little organizational risk should
be of high priority
When to  Implement phased integration approach
integrate? according to business priorities

 The extent of acquisition  Focus on the most critical areas,

required depends on How much Successful do a good job on the basics
factors such as the overall What to  Assess what has been acquired
to and Quick
strategy, financial, integrate? and select the most essential
integrate? Integration functions
business and process
goals

How  Do not prolong the “tug-of-war” in integration. Selecting

would we best of existing systems and processes from either
company might not be most effective
integrate?  Choice of which system/processes to use depends on
factors such as size of acquired company, performance
level, etc.
Characteristics of Most Successful M&As
Cross-functional
Permanent integration team
M&A Manual
integration staff with members
from both firms

Communication
Pre-merger Checklists of
strategies that
cultural potential problem
match the M&A
assessments areas
motive

Both formal and Consistency

informal Use of professional between initial
communication communicators promises and
tactics used implementations
• Suzlon Energy Ltd. is a wind turbine supplier based in Pune, India. Formerly ranked by MAKE as the world's fifth largest wind turbine supplier,[2]it has since dropped out of the Global top ten rankings (as of 2014) due to extensive losses and inability to repay debts.[3] The company's
website claims to have over 17,000 MW of wind energy capacity installed globally, with operations across 18 countries and a workforce of over 8,000.[4] In 2016, the company finally posted a profit EBITDA after losses over seven consecutive years.[5]
• The company is listed on the National Stock Exchange of India (NSE:SUZLONEQ) and on the Bombay Stock Exchange (BSE:532667). Though once considered a favourable stock, and a favourite of the stock broker Rakesh Jhunjhunwala, it fell out of favour as the company posted continuous
losses.[6] It fell from a high of Rs. 68.75 in 2010 to a low of Rs. 18.5 in 2014, with a single day drop of 10% in September 2014.[7] It continues to trade low at less than Rs. 17 per share in 2018.[8]
• Company structure[edit]
• Suzlon is a vertically integrated wind power company. It makes and installs wind turbines, and manufactures blades, generators, panels, and towers in-house. It is integrated downstream and delivers turnkey projects through its project management and installation consultancy, and
operations & maintenance services. Suzlon has offices, R&D and technology centres, manufacturing facilities and service support centres spread across the globe, with its head office in Pune, India.The company's larger offices, design and R&D teams are located in India, Germany,
Denmark and The Netherlands. As per its website, Suzlon has fifteen manufacturing facilities and a workforce of over 8,000 employees globally.[9]
• History[edit]
• In 1995, founder Tulsi Tanti was managing a 20-employee textile company. Due to the erratic availability of power locally, and its rising costs, the highest business expenditure after the raw materials was electricity.[10] The cost of electricity also offset any profits made by the company.[11]
After providing electricity for his own company, Tanti moved into wind energy production as a way to secure the textile company's energy needs, and founded Suzlon Energy.[12] Suzlon adopted a business model wherein clients would be responsible for 25% of the up-front capital
investment and Suzlon would arrange the remaining 75% on loan. Initially, banks were hesitant to fund loans for this model, but by 2008, many Indian banks started financing wind power projects for Suzlon clients.[10]
• In 2001, Tanti sold off the textile business; Suzlon is still actively run by Tulsi Tanti, now in the role of Chairman, Suzlon Group.
•  
• Rainbow behind the Suzlon WTG
• In 2003, Suzlon got its first order in USA from DanMar & Associates to supply 24 turbines in southwestern Minnesota.[13] Also in 2003 Suzlon set up an office in Beijing.[10]
• Suzlon Rotor Corporation in 2006 began producing the blades in Pipestone, Minnesota in the United States. Among its clients is Wind Capital Group.[14]
• In the year 2006, Suzlon reached a definitive agreement for acquisition of Belgium firm Hansen Transmissions, specializing in gearboxes for wind turbines, for $565 million. In 2007, the company purchased a controlling stake in Germany's Senvion (then operating as REpower Systems)
which valued the firm at US$1.6 billion.
• In June 2007, Suzlon had signed a contract with Edison Mission Energy (EME) of US for delivery of 150 wind turbines of 2.1 megawatts in 2008 and a similar volume to be delivered in 2009. EME had an option not to purchase the 150 turbines due to be delivered in 2009, which it has
chosen to exercise.
• In November 2009, the company decided to sell 35% stake of Hansen for $370 million as part of its debt restructuring program, through placing new shares. It appointed Bank of America Merrill Lynch and Morgan Stanley as the managers and book runners for the same.[15][16][17]
• In January 2011, Suzlon received an order worth US$1.28 billion for building 1000 megawatts of wind energy projects from the Indian branch of the Lord Swaraj Paul-owned Caparo Energy Ltd.[18]
• In May 2011, Suzlon announced returning to profitability after the financial crisis of 2009 [19]
• In October 2011, Suzlon sold its remaining 26.06% stake in Hansen Transmissions International NV to ZF Friedrichshafen AG for ₹ 8.9 billion (US$120 million). [20] In the same month, it also achieved full control of its German subsidiary REpower Systems (now Senvion) by acquiring the
remaining 5% stake held by minority shareholders that resisted the takeover. The takeover was completed through the squeeze-out procedure by paying EUR 63 Million. [21]
• It has to redeem 500 million worth of FCCB's (foreign currency convertible bonds) in 2012 in tranches of 300 million in June and 200 million in October respectively. In line with the previously announced strategy to dispose of non-critical group assets to reduce long-term debt, Suzlon
Chairman said that Suzlon Energy, will sell stake in its China manufacturing unit to China Power New Energy Development Company Limited for 3.4 billion rupees ($60 million).[22]
• On 30 November 2013 the Suzlon Group subsidiary REpower Systems (now Senvion SE) won an Engineering, Procurement and Construction (EPC) contract from Mitsui & Co (Australia) Ltd to deliver 52 wind turbines with a total rated output of 106.6 MW for the Bald Hills wind farm in
Victoria, Australia.[23]
• As of August 2014, Suzlon's debt was over ₹ 8000 crores.[24] On 22 January 2015, Suzlon announced the sale of Senvion SE, its wholly owned subsidiary, to Centerbridge Partners, a private equity firm in a deal valued at ₹ 7200 crores.[25] The deal is expected to ease Suzlon's debt burden.[25]
In a further equity infusion, Dilip Shanghvi Family and Associates (DSA), run by Dilip Shanghvi, the founder and managing directory of Sun Pharmaceutical, agreed to purchase a 23 percent stake in Suzlon for a sum of ₹ 1800 crores.[26] The deal will see Tanti's holding shrink to 24 percent,
but management control will still remain with the Tanti family.[26] Its total borrowings stood at Rs 11430.76 crore in FY16 from Rs 17810.96 crore FY15.[27]
• On 17 January 2017, Suzlon Energy achieved 10,000 megawatts installed wind energy milestone in India. Suzlon's 10,000 MW of wind installation is capable of powering over 5 million households per annum and offsets approximately 21.5 million tonnes of carbon dioxide (CO2) emission
annually which is equivalent to planting over 1500 million trees.[28]
• Wind parks[edit]
• Globally, Suzlon has installed over 17000 MW of wind power capacity in 18 countries.[29]
• India[edit]
• Suzlon crossed 11,000 megawatts of cumulative installations in India.[30] Suzlon has cumulatively added over 11000 megawatts of wind power capacity for over 1,700 customers in India across 40 sites in eight States. Suzlon accounts for nearly one-third of the country's total wind
installations.[31]
• Its notable installations in India include:
• The 1064 MW Jaisalmer Wind Park in Rajasthan.[32]
• The 1100 MW wind park in the Kutch district, Gujarat,[33] with plans to expand it to 2000 MW in the next four to six years.[34] As of February 2015, this is the largest wind park in Asia at a single location.[33]
• A 584 MW wind park in the Eastern Ghats, (Tamil Nadu).[35]
• The 210 MW Vankusawade Wind Park near the Koyna reservoir in the Satara district of Maharashtra.[36]
• In 2012, Suzlon signed an Expression of Interest with the government of Karnataka to develop 2500 MW of wind power in the state between 2012 and 2017.[37]
• Wind power generation capacity in India has significantly increased in recent years. As of 30 June 2018 the total installed wind power capacity was 34.293 GW, the fourth largest installed wind power capacity in the world .[1][2]Wind power capacity is mainly spread across the South, West and North regions.[3]
• Wind power costs in India are decreasing rapidly. The levelised tariff of wind power reached a record low of ₹2.43(3.4¢ US) per kWh (without any direct or indirect subsidies) during auctions for wind projects in December 2017.[4][5]In December 2017, union government announced the applicable guidelines for tariff-based wind power auctions to bring more clarity and minimise the risk to the developers. [6]
•  
• The table below shows the India's year on year installed wind power, annual wind power generation and annual growth in wind power generation since 2006. [7]
• History[edit]
• Installed Wind Power Capacity
• Fiscal
• Year End Cumulative Capacity (in MW)
• 2005
• 6,270
• 2006
• 7,850
• 2007
• 9,587
• 2008
• 10,925
• 2009
• 13,064
• 2010
• 16,084
• 2011
• 18,421
• 2012
• 20,149
• 2013
• 21,264
• 2014
• 23,354
• 2015
• 26,769
• 2016
• 32,280
• 2017
• 34,046
• Development of wind power in India began in December 1952, when Maneklal Sankalchand Thacker , a distinguished power engineer, initiated a project with the Indian Council of Scientific and Industrial Research  (CSIR) to explore the possibilities of harnessing wind power in the country. [9] The CSIR established a Wind Power Sub-Committee under P. Nilakantan, which was assigned the task of investigating the available resources that could be practically utilized, along with researching
the economic possibilities of wind energy.[10] With assistance from the Indian Meteorological Department , the Sub-Committee extensively reviewed available data on surface winds in India and their velocity duration, and began detailed surveys of promising sites for harnessing the optimum amount of wind energy; it also successfully developed and tested large wood-and-bamboo windmills. 
• In September 1954, a Symposium on Solar Energy and Wind Power organised by the CSIR and UNESCO was held in New Delhi; among the attendees was E. W. Golding, a British power engineer and authority on wind energy generation. [9] Convinced of the potential of wind power in India, he recommended continued and extensive wind velocity surveys in different regions of India, the full-time assignment of staff to experimental wind power studies, the establishment of a dedicated
research laboratory and development of small to medium-sized wind-powered electrical generators. Golding's recommendations were adopted by the CSIR in 1957. [9] By this time, regions of Saurashtra  and around Coimbatore  had been identified as promising sites for generating electricity from wind power, and the Wind Power Sub-Committee had begun to erect 20 wind velocity survey stations across India, in addition to testing its indigenously designed windmills and obtaining a 6
kw. Allgaierwind turbine, which was presented to India by the West German government; experiments at Porbandar with the latter had commenced by 1961. [10][9] The Indian government also considered a proposal to erect over 20,000 small to medium-sized wind-powered electrical generators in rural districts, to be used for powering water pumps and supplying electricity for remotely situated structures such as lighthouses. [10]
• In 1960, the CSIR established a Wind Power Division as part of the new National Aeronautical Laboratory (NAL) in Bangalore, which was founded that year.[9] From the 1960s into the 1980s, the NAL and other groups continued to carry out wind velocity surveys and develop improved estimates of India's wind energy capacity. [11] Large-scale development of wind power began in 1986 with the first wind farms  being set up in coastal areas of Maharashtra (Ratnagiri ), Gujarat (Okha) and 
Tamil Nadu (Tirunelveli) with 55 kW Vestas wind turbines. These demonstration projects were supported by the Ministry of New and Renewable Energy (MNRE).
• The potential for wind farms in the country was first assessed in 2011 to be more than 2,000 GW by Prof. Jami Hossain of TERI University, New Delhi. [12] This was subsequently re-validated by Lawrence Berkley National Laboratory, US (LBNL) in an independent study in 2012. As a result, the MNRE set up a committee to reassess the potential[13] and through the National Institute of Wind Energy (NIWE, previously C-WET) has announced a revised estimation of the potential wind
resource in India from 49,130 MW to 302,000 MW assessed at 100 m hub height.[14]Wind turbines are now being set up at even 120 m hub height and the wind resource at higher hub heights of around 120 m or more that are prevailing is possibly even more. 
• In 2015, the MNRE set the target for Wind Power generation capacity by the year 2022 at 60,000 MW.[1][15]
• East and North east regions have no grid connected wind power plant as of December 2017. 
• No offshore wind farm is under implementation as of December 2017. [16] However, an Offshore Wind Policy was announced in 2015 and presently weather stations and LIDARs are being set up by NIWE at some locations.[17] The first offshore wind farm is planned near Dhanushkodi  in Tamil Nadu. [18]
• Electricity generation[edit]
• Wind power accounts for nearly 10% of India's total installed power generation capacity and generated 52.67 TWh in the fiscal year 2017-18, which is nearly 3% of total electricity generation.[19] The capacity utilisation factor  is nearly 16% in the fiscal year 2017-18 (19.62% in 2016-17 and 14% in 2015-16). 70% of wind generation is during the five months duration from May to September coinciding with Southwest monsoon  duration. In India, solar power  is 
complementary to wind power  as it is generated mostly during the non monsoon period in daytime.[20]
• Tamil Nadu[edit]
• Tamil Nadu's wind power capacity is around 29% of India's total.[when?] The Government of Tamil Nadu realized the importance and need for renewable energy, and set up a separate Agency, as registered society, called the Tamil Nadu Energy Development Agency (TEDA) as early as 1985. Now,[when?] Tamil Nadu has become a leader in Wind Power in India. In Muppandal windfarm the total capacity is 1500 MW, the largest wind power plant in India. The total wind installed capacity in
Tamil Nadu is 7633 MW. [22] During the fiscal year 2014-15, the electricity generation is 9.521 GWh, with about a 15% capacity utilization factor.[23]
• Maharashtra[edit]
• Maharashtra  is one of the prominent states that installed wind power projects second to Tamil Nadu in India. As of end of March 2016, installed wind power capacity is 4655.25 MW [citation needed]. As of now[when?] there are 50 developers registered with state nodal agency "Maharashtra energy Development Agency" for development of wind power projects. All the major manufacturers of wind turbines including Suzlon, Vestas, Gamesa, Regen, Leitner Shriram have presence in
Maharashtra.
• Gujarat[edit]
• Gujarat government's focus on tapping renewable energy has led to sharp rise in the wind power capacity in the last few years. According to official data, wind power generations capacity in the state has increased a staggering ten times in just six years. ONGC Ltd. has installed a 51MW wind energy farm at Bhuj in Gujarat . Renewable energy projects worth a massive Rs 1 lakh crore of memorandums of understanding (MoUs) in the Vibrant Gujarat Summit in 2017.[24]
• Rajasthan[edit]
• 4031.99 MW wind power installed as per 31.03.2016.[citation needed]
• Madhya Pradesh[edit]
• In consideration of unique concept, Govt. of Madhya Pradesh has sanctioned another 15 MW project to Madhya Pradesh Windfarms Ltd. MPWL, Bhopal at Nagda Hills near Dewas under consultation from Consolidated Energy Consultants Ltd. CECL  Bhopal. All the 25 WEGs have been commissioned on 31.03.2008 and under successful operation.[25]
• Kerala[edit]
• 55 MW production of wind power is installed in Kerala. The first wind farm of the state was set up 1997 [when?] at Kanjikode in Palakkad district . [citation needed]
• The agency has identified 16 sites for setting up wind farms through private developers.[citation needed]
• Odisha[edit]
• Odisha a coastal state has higher potential for wind energy. Current installation capacity stands at 2.0 MW. Odisha has a windpower potential of 1700MW. The Govt of Odisha is actively pursuing to boost Wind power generation in the state. however it has not progressed like other states primarily because Odisha having a huge coal reserve and number of existing and upcoming thermal power plants, is a power surplus state. [26]
• West Bengal[edit]
• The total installation in West Bengal  is 2.10 MW till Dec 2009 at Fraserganj, Distt- South 24 Paraganas. More 0.5 MW (approx) at Ganga Sagar, Kakdwip, Distt - South 24 Paraganas. Both the project owned by West Bengal Renewable Energy Development Agency (WBREDA), Govt. of WB and project was executed on turnkey basis by Utility Powertech Limited (UPL). [citation needed]
• Jammu and Kashmir[edit]
• The Kargil, Ladakh, occupied Gilgit and China occupied Aksai Chin  regions of Jammu and Kashmir  state are potential wind energy areas, which are yet to be exploited.[14] Wind Speeds are higher during the winter months in the state, which is complimentary to the hydro power available during the summer months from the snow melt water. Being a Himalayan state located at higher altitude, the heating energy requirements are high which can be met by the renewable energy
resources such as wind, solar and hydro power. The state is yet to open its account in grid connected wind power installations.
•  
• Offshore wind power plants[edit]
• India started planning in 2010 to enter into offshore wind power, [33] and a 100 MW demonstration plant located off the Gujarat coast began planning in 2014.[34] In 2013, a consortium (instead of group of organizations), led by Global Wind Energy Council (GWEC) started project FOWIND (Facilitating Offshore Wind in India) to identify potential zones for development of off-shore wind power in India and to stimulate R & D activities in this area. [35] The other consortium partners include
the Centre for Study of Science, Technology and Policy (CSTEP), DNV GL, the Gujarat Power Corporation Limited (GPCL) and the World Institute of Sustainable Energy (WISE). The consortium was awarded the grant of €4.0 million by the delegation of the European Union to India in 2013 besides co-funding support from GPCL. The project action will be implemented from December 2013 to March 2018.
• The project focuses on the States of Gujarat and Tamil Nadu for identification of potential zones for development through techno-commercial analysis and preliminary resource assessment. It will also establish a platform for structural collaboration and knowledge sharing between stakeholders from European Union and India, on offshore wind technology, policy, regulation, industry and human resource development. FOWIND activities will also help facilitate a platform to stimulate
offshore wind related R&D activities in the country. The consortium published initial pre-feasibility assessment reports for offshore wind farm development in Gujarat and Tamil Nadu on 16 June 2015. [36][37] In September 2015, the India's cabinet has approved the National Offshore Wind Energy Policy. With this, the Ministry of New & Renewable Energy (MNRE) has been authorized as the Nodal Ministry for use of offshore areas within the Exclusive Economic Zone (EEZ) [38]
• India seems pacing up rapidly towards offshore wind energy development as the Nodal Ministry (MNRE) & Nodal Agency (NIWE) calls with the Expression of Interest (EoI) [39] inviting the bidders for development of first 1000MW commercial scale offshore windfarm in India, near the coast of Gujarat. The EoI published on 16th Apr 2018, specifies the proposed area identified under the FOWIND & FOWPI study funded by European Union. The proposed location of the offshore windfarm
could be 23-40km off the coast from the Pipavav port, Gulf of Khambhat. The proposed area covers about 400sq km. The wind measurements & other data collection are under progress under the supervision of NIWE.
•  
 Wind Turbine Manufacturers
• This is a list of notable wind
turbine manufacturers and
businesses that manufacture major
wind turbine components.
• Small wind turbine manufacturers
• Hi-VAWT wind turbine installation
in Taiwan
• Altinel Enerji LTD (iSTA-Breeze
series) (Turkey)[1]
• Enessere (Italy)
• Hi-VAWT (Taiwan)
• quietrevolution (United Kingdom)
• Southwest (USA) - closed February
20, 2013
• TUGE Energia (Estonia)
• Urban Green Energy (USA)
• Bornay (Spain)
• Large wind turbine manufacturers[
edit]
• Current manufacturers:
• China Guodian Corporation (China)
- turbine brand United Wind Power
• Clipper Windpower (USA)
• CNR (China)
• CSIC (Chongqing) - HZ Wind Power
(China)
• DSTN (DSME Trenton) (Canada)
• Elecon Engineering (India)
• Enercon (Germany) • RRB Energy Limited (India)
• Envision Energy (China) • Doosan Heavy Industries (South
• General Electric (USA) Korea)
• SANY (China)
• Goldwind (China)
• Senvion (Germany)
• Hanjin (South Korea)
• Shanghai Electric (China) (SEwind)
• Hitachi (Japan) - acquired the wind
turbine business of • Siemens Gamesa Renewable Energ
Fuji Heavy Industries in 2012[2] y
(Germany/Spain)
• Hyosung (South Korea)
• Sinovel (China)
• Hyundai Heavy Industries (South
Korea) • STX Windpower (South Korea / The
• Inox Wind (India) [3] Netherlands)
• Japan Steel Works (Japan) • Suzlon (India)
• TECO (Taiwan)
• Končar (Croatia)
• Unison (Republic of Korea)
• Leitwind (Italy)
• Vergnet (France)
• Mapna (Iran)
• Vestas (Denmark)
• Ming Yang (China)
• Mitsubishi Heavy Industries (Japan)
• Nordex SE (Germany)
• Northern Power Systems (USA)
• PacWind (USA)
• Raum Energy Inc. (Canada)
 Wind Turbine Manufacturers
• The world's largest manufacturer of wind turbines
• WEG (Brasil)
• Windflow (New Zealand)
• Past manufacturers:
• DeWind (Germany/USA) - subsidiary of Daewoo Shipbuilding & Marine Engineering (South Korea)
• Alstom Wind (Spain) - subsidiary of General Electric since 2014
• Ecotècnia (Spain) - acquired by Alstom Wind (Later acquired by General Electric, now GE Power
Conversion)
• Enron Wind (now defunct) - wind-turbine manufacturing assets bought by General Electric in 2002
• Fuji Heavy Industries (Japan) - the wind turbine business was acquired by Hitachi in 2012
• Gamesa (Spain)
• NEG Micon - now part of Vestas
• Nordic Windpower (USA) - bankrupted in 2012
• Scanwind (Norway) - bought by General Electric in 2009
• Schuler (Germany)
• WinWinD (Finland)
• MAPNA (Iran)
REpower
 Introduction to the Issues
• Tulsi Tanti, the founder, Director and Chairman of • Tanti’s demeanor was serious and modest, but his
the Indian wind turbine manufacturer, Suzlon, strategy of stoking business growth through
arrived at the company’s headquarters in January global takeovers was aggressive
2014 contemplating the integration of one of • If he could not build something, he acquired it
Suzlon’s subsidiaries, REpower • Most of the deals he had struck had successfully
• The unforeseen challenges brought on by the served their purpose, but for one
REpower acquisition had been among the
• After a takeover battle against the French group,
toughest he had ever faced AREVA S.A., Suzlon acquired the German wind
• After entering international markets in the early turbine maker REpower in 2007 for €1.34 billion
2000s, Suzlon had rapidly emerged as the world’s
• It was one of the largest overseas acquisitions
fifth largest wind turbine manufacturer, leaving made by an Indian firm
behind several of its European and American
competitors • Keen on accessing REpower’s offshore wind
turbine technology, Tanti was quick to outbid
• Headquartered in Pune, in the western Indian AREVA during the takeover battle
state of Maharashtra, the company operated in
six continents and had amassed a diverse
workforce of over 10,000 people by 2013
• Under Tanti’s leadership, the company had
developed capabilities to perform higher value-
added activities despite being a late industry
entrant and one, moreover, from an emerging
economy
• Its services ranged from design and development
to the manufacture, operation, marketing and
maintenance of wind turbines
• Moreover, Tanti had attained a total net worth of
US$690 million, making him one of the 100
richest Indians
 Introduction to the Issues
• However, even after Suzlon • Now, nearly seven years later,
became the majority he wondered whether his
shareholder, accessing “power struggle” with this
REpower’s technology subsidiary might finally be
remained a distant dream over
• With German corporate law
and financing agreements on
its side, REpower refused to
share its technology with the
majority shareholder until
Suzlon acquired 100%
ownership
• Being a technologically
superior and more established
subsidiary, REpower had
greater negotiating power
than Suzlon
German Corporate Law
AREVA S.A.
Tulsi Tanti
Wind Turbine
United States Department of Energy
National Aeronautics and Space
Administration (NASA)
Danish Turbines
 Global Wind Power Industry
• Early experiments using wind energy to generate
electricity began in the late eighteenth century in
Europe and the United States
• During the two world wars, the restrictions on
fossil fuel imports triggered wind turbine
development; however, these developments
were largely experimental and occurred on a
small scale
• It was ultimately the oil crisis of the 1970s and
the subsequent rise in demand for renewable
energy sources, such as solar and wind energy,
that provided the necessary impetus for the
establishment and growth of the modern wind
power industry
• This was further boosted by a favorable U.S.
policy environment for wind energy in the early
1980s
• During this period, the industry experienced a
number of product innovations, primarily from
two competing technological trajectories — one
in northern California in the U.S., and another in
Jutland, Denmark
• In California, the United States Department of
Energy and National Aeronautics and Space
Administration (NASA), in response to the oil
crisis, engaged a number of engineers to
cooperate with companies in the aircraft industry
to develop sophisticated, high-technology, large-
scale and aerodynamically-optimized turbines
based on aeronautical engineering principles
• In Denmark, however, diverse wind power
enthusiasts such as farmers, carpenters and
engineers collaborated to develop robust, small-
scale, three-bladed turbines with reliability and
ruggedness as their key criteria
• While Danish turbines were initially small in size,
a number of incremental innovations led
manufacturers to scale them up to meet broader
commercial demands
• In the 1980s, a favorable policy environment in
the U.S. generated high demand for wind
turbines and fierce competition among turbine
manufacturers
• The Danish low technology-high reliability wind
turbine proved commercially superior to its
American high technology-low reliability
counterpart
 Global Wind Power Industry
• As a result, the Danish turbine emerged in the
late 1980s as the dominant industry standard
with Danish firms controlling the majority of the
world market share
• The industry experienced a period of
consolidation, and leading manufacturers such as
Vestas, Bonus, NEG and Micon from Denmark
and Enercon from Germany began to grow
• As noted by a Danish industry expert:
• Although they [the wind turbine manufacturers]
had got a system that worked in terms of
technology, many problems remained
• A major problem was pushing the utility
companies to accept this alternative energy
• In Europe, we started to have a system of
subsidizing this industry
• That really took it to the next level
• We started seeing a lot of restructuring in the
industry in 1990s
• The companies were becoming more and more
professional, but there were still no big players in
the industry
• In order to make turbines more cost effective,
Danish manufacturers incrementally increased
turbine size
• From 55 kilowatts (kW) in 1982, turbines steadily
grew to 450 kW by the early 1990s
• Around this time, the growth of the wind power
market in the U.S. had leveled off, and by the
mid- 1990s, Europe had become the largest
market, mainly because of the feed-in tariffs
provided by several European countries
• Throughout the 1990s, turbine size continued to
grow gradually, and by the end of that decade,
turbines in the range of 600 kW to 1 megawatt
(MW) became common (see Exhibit 1, panel A)
• In 2007, the industry had installed over 20,000
MW of wind turbines by investing around
US$37billion, bringing global capacity to about
94,000 MW
 Global Wind Power Industry
• This generated residential electricity for 150
million people
• In 2013, global wind power installations grew by
35,301 with an investment of US$80.3 billion,
taking total capacity to 318,117 MW
• Wind energy accounted for over 2.5% of the total
electricity usage in the world
• As an alternative energy source, it had grown
significantly at above 25% per annum
• At the end of 2012, there were 225,000 turbines
operating in 79 countries
• Several countries used wind as an alternative
energy source, with Denmark topping the list as it
relied on wind turbine energy to meet over a
quarter of its total energy needs
• The leading manufacturers in 2012 were Vestas
(Denmark), Goldwind (China), Enercon
(Germany), Siemens (Germany) and Suzlon
(India)
• Although onshore wind energy posed direct
competition to conventional energy sources the
world over, the emergence of offshore wind
turbines was an important development in the
wind energy industry
• The world’s first offshore wind farm, Vindeby
(5MW), was constructed in Denmark in 1992
• By 2012, 4620 MW of offshore wind power had
been installed globally, representing
approximately two percent of the world’s total
installed wind power capacity
• The growing relevance of offshore wind energy
was apparent in the fact that governments and
companies in several countries, including India,
had displayed an interest in developing offshore
wind capacity
• It was projected, perhaps ambitiously, that a total
offshore wind capacity of 80 gigawatt (GW)
would be installed globally by 2020
• Offshore wind found an increasing number of
takers because it offered higher wind speeds, less
turbulence and fewer environmental constraints
than onshore wind
• Feed-in tariff is a payment made to renewable
energy producers at a fixed price per KWh (Kilo
Watt Hour) of generated energy
(Musgrove, P. “The Evolution of the Modern Wind Turbine, 1973
to 1990.” In Wind Power, 1st edition, Cambridge: Cambridge
University Press, 2010, 87-124.)
 Beginning
• In the late 1980s, the Indian government began
promoting entrepreneurship in the sphere of
wind energy
• Wind power manufacturers were offered many
financial incentives such as 100% accelerated
depreciation on wind equipment, excise and
custom duty relief, a tax holiday for five years and
soft loans
• The government implemented policies to
facilitate wheeling, power transmission, banking
and wind power purchase
• Under wheeling, the existing transmission grid of
the state electricity boards was made available to
wind entrepreneurs to transmit (or wheel)
electricity to consumers at a uniform wheeling
charge
• Under banking, wind power producers could
bank the generated electricity as credit with the
electricity boards and in return get utility tax
relief on captive electricity usage
• Around that time, Tanti, with an undergraduate
degree in mechanical engineering and commerce,
was working in a textile company run by his
family in the coastal city of Surat in the western
Indian state of Gujarat
• Though the company was a fairly successful
polyester yarn manufacturer, it had begun to
experience financial difficulties in the early 1990s
due to rising electricity costs
• To deal with the energy crisis, Tanti invested in
two wind turbines made by the German
manufacturer Südwind
• He was pleasantly surprised to see his electricity
costs decrease in an environmentally friendly and
reliable way
• Although wind power turned out to be a viable
alternative for Tanti’s textile business, installing
the wind turbines themselves was no easy matter
• This was primarily because turbine
manufacturers would often only sell the turbines,
leaving customers to figure out how to install and
operate them
 Beginning
• Tanti spotted a business opportunity and founded
Suzlon Energy Limited in 1995 with an initial
investment of US$600,000
• Based on his experience with Südwind turbines,
Tanti signed a contract with the German company
to sell their 270 kW and 350 kW turbines in India
• Suzlon was not just a supplier, but also an
installer, operator and caretaker of wind turbines
• To gain expertise in wind turbine technology,
Suzlon entered into a technical collaboration
agreement with Südwind in 1996
• According to this agreement, Südwind agreed to
share its engineering knowledge with Suzlon in
return for royalty payments on every Suzlon-
made wind turbine sold for the next five years
• However, in 1997, Südwind went bankrupt
• Seizing the opportunity, Tanti hired Südwind
engineers and started manufacturing wind
turbines in India
• Suzlon’s portfolio now included 270 kW, 300 kW,
350 kW, 600 kW and 750 kW wind turbines
• At that time, the Indian wind industry was
dominated by Vestas (Denmark), Enercon
(Germany) and NEPC (an Indian company that
had a technical collaboration with a Danish
company called Micon)
• To compete with these firms, which were offering
European-made turbines, Suzlon started selling
wholly indigenous turbines that were much
cheaper
• Suzlon manufactured the turbines in-house,
which allowed it to maintain a tighter control
over the supply chain, thereby reducing its costs
and enabling faster delivery of orders
• Backward integration targets, such as small-scale
local suppliers of turbine parts, began appearing
in India in the 1990s
• Suzlon acquired many such local targets to
establish manufacturing units for turbine parts
• With its expanding manufacturing capabilities,
Suzlon moved up the value chain from low-tech
to mid-tech activities
 Beginning
• It imported and then adapted foreign technologies to suit
domestic wind conditions of lower average wind speeds
• Although the technologies were mostly mid-tech and
standardized, manufacturing activities provided the company
with critical operational knowledge
• As noted by a Suzlon executive:
• In the initial years, there was less focus on R&D
• However, indigenizing imported technology was happening all
along
• You cannot always just import the knowledge; you have to
develop your own means
• That is a major task
• Take, for example, wind turbine generators
• They are specially designed for wind
• We got that technology from Elin, Austria [a generator supplier]
• But then, with their consultation, we manufactured generators
in our own plants
• At the same time, we designed generators for other turbine
categories
• Adaptation of technology to suit the Indian environment was
what was achieved
• To manufacture an entire turbine from different components, it
was necessary to have integrated plants
• Recognizing this need, Suzlon lobbied for and then developed
special economic zones (SEZs) in India
• SEZs were created in developing countries to foster industrial
development, foreign direct investment (FDI) and exports
• Suzlon’s knowledge of local institutions helped it foster such
institutional entrepreneurship
• Moreover, it encouraged its suppliers to relocate to these SEZs,
close to its plants, to further ensure reliable supply
• As an early customer of wind energy, Tanti was well aware of
the large initial capital investment required to set up
infrastructure
• He used this experience to help clients arrange 75% of the
initial investment by educating lending banks about the
reliability and cost advantage of wind power over traditional
power sources
• Suzlon also performed site surveys for customers to identify the
most promising wind sites for both smaller and larger projects,
such as the wind farms
• For example, one of Asia's largest wind farms, operated by
Suzlon, was located in Kutch, a coastal region in Gujarat
• The farm made use of the region’s consistent wind profile and
abundant non-agricultural land
• Tanti’s business approach was customer focused, based on a
knowledge of local market conditions and an operational
knowledge of foreign technologies
• He strived to keep manufacturing costs low, and in a mere four
years after its inception, Suzlon dominated the Indian wind
power market with close to 50% market share
 Growing Through Acquisition
• In the late 1990s, the U.S. and Indian markets for
wind power witnessed rapid growth
• By 1999, India had become one of the top five
countries in terms of installed wind power
capacity
• Germany was the top market for wind power
followed by the U.S., Denmark and Spain
• The Kyoto Protocol is an international agreement
linked to the United Nations Framework
Convention on Climate Change
• The major feature of the Kyoto Protocol is that it
sets binding targets for 37 industrialized
countries and the European community for
reducing greenhouse gas emissions
• The leading manufacturers were Vestas, Enercon
and Gamesa (Spain)
• The Kyoto Protocol of 1997 had further propelled
the growth of the clean energy sector in Europe
and North America
• With the experience it had obtained in the Indian
market and its strong financial position, Suzlon
was now ready to enter the global wind rush
• Compared to its overseas counterparts, the India-
based Suzlon had lower operating costs
• The 5- 6% lower manpower cost and the 10-12%
lower raw material cost-to-sales ratio in India
reduced the price of a product by 15%
• However, the wind power industry was a
technology-intensive emerging industry with
limited advantages for a cost-only strategy
• The industry leading European firms were
committed to research and development (R&D)
and constantly pushed the industry’s technology
frontier forward
• Clearly, Suzlon with its standard technology could
not successfully compete in the international
market
• Further, it was considered a non-serious player
on account of being neither European nor
American
• Locational disadvantage posed many hurdles for
the nascent company, especially since India was
primarily known as an exporter of software and
services, not hardware
 Growing Through Acquisition
• Around the same time, Suzlon started • The following year, he established a licensing
experiencing shortages of critical parts such as agreement with the Dutch firm Aerpac B.V. to
rotor blades, which slowed down the pace of its gain access to their rotor blade design expertise
projects • To produce different varieties of rotor blades in
• The transaction costs of purchasing such parts in India, he bought manufacturing and marketing
the market were much higher than controlling rights from Enron Wind, a bankrupt American
the supply internally manufacturer of rotor blades
• In an effort to reduce costs, generate internal • This purchase also gave Suzlon state-of-the-art
expertise in turbine technology and increase its production line and technical support
presence in global markets, Suzlon orchestrated a • By 2002, Tanti had set up an R&D subsidiary in
series of acquisitions and technology licensing Germany by acquiring the German firm AX 215
agreements (see Exhibit 1) Verwaltungsgesellschaft mbH. In 2004, Suzlon set
• Describing the company’s early acquisition up a joint venture with one of its generator
strategy, a Suzlon executive said: suppliers, Elin Motoren Gmbh of Austria, and
• Acquisition targets have been selected based on began manufacturing generators in India (see
the evolution of the company Exhibit 2)
• The process has been driven by the chairman’s
[Tulsi Tanti’s] vision of what Suzlon is to be as a
business
• Early acquisitions were a mix of getting the team
as well as the technology
• As Europe was considered the hub for wind
power, Tanti focused on acquiring European
talent
• In 2000, he acquired AE-Rotor Techniek BV, a
bankrupt Dutch firm, to set up a rotor blade
design facility
 Growing Through Acquisition
• With every acquisition, Suzlon’s portfolio became
richer
• In 2000, it began manufacturing 1 MW wind
turbines
• By 2004, 1.25 MW and 2 MW wind turbines were
part of its portfolio (see Exhibit 1, panel B)
• It was ranked sixth in terms of global installations of
turbines in 2004
• To fulfill its growth aspirations, in 2005, Suzlon
sought to raise funds with an initial public offering
• The share issue was very successful and raised about
US$342 million
• After this, Tanti started planning his next move to
enter the big league of offshore wind turbine
manufacturers
• A Suzlon executive explained the company’s revised
knowledge acquisition strategy:
• Today Suzlon has a fair amount of [output]
knowledge
• The next acquisitions will be focused on what
technological gaps exist, what future markets are
expected to be, what future technologies are
expected to be, [and] what technological
discontinuities are expected
• Now the acquisitions will be more systematic,
futuristic and strategic
• Now it is based on innovation — what do I need to
build future products?
• Post-2006, Suzlon initiated two of its largest and
most important acquisitions
• In 2006, it acquired Hansen Transmissions of
Belgium (Hansen), the second largest gearbox
manufacturer in the world
• In 2007, it acquired REpower Systems AG (REpower),
a large German turbine manufacturer, whose
product portfolio included the largest multi-
megawatt offshore wind turbine
• Through these acquisitions, Suzlon aimed to build its
knowledge portfolio in key technology areas
• While Suzlon maintained India as its major
manufacturing base to leverage locational cost
advantage, it established large manufacturing
facilities in high-growth markets, namely the U.S.
and China
 Growing Through Acquisition
• In 2005, Suzlon set up its subsidiary in Pipestone, • R&D strategies are decided between the CEO, the
Minnesota, in the U.S., to manufacture rotor blades head of technology along with the [regional] business
• By 2007, it had set up a subsidiary in Tianjin, China, heads ... Innovation system is highly centralized
to make complete wind turbines • Our vision is to avoid duplication and centralize R&D
• Such local factories considerably reduced the cost of decision making ... We are expanding advanced R&D
transporting heavy turbine parts from the functions here in India now. We have set up some
manufacturing facility to the installation site and product development teams here
ensured that projects were completed on time • The ambition is to transfer work here
• Suzlon received its first international order in 2002 • The strategy of vertical integration, coupled with the
from DanMar and Associates, U.S., for a 22.8 MW geographical dispersion of value chain activities to
wind farm project to be developed in the state of appropriate locations, served Suzlon well, making it a
Minnesota From that point onwards, its international global brand
sales began to rise
• By 2006, Suzlon had started receiving major orders
from China and Europe, and in 2007, its international
sales overtook its domestic sales (see Exhibit 4)
• Suzlon also gained locational advantages by
establishing R&D centers and its international
headquarters where it could access world-class
industry-specific talent pools
• In 2001, Suzlon set up a subsidiary for rotor blade
R&D in the Netherlands to utilize Dutch expertise in
aerodynamic blade design
• The German subsidiary set up in 2002 was aimed at
accessing German engineering skills in designing
wind turbines
• In 2004, as a strategy for global growth, Suzlon
moved its international marketing headquarters to
Denmark
 Competition
• In shaping its strategic framework, Suzlon had to contend
with a host of competitors
• Industry incumbents such as Vestas invested heavily in
R&D and had established a global R&D network
• For example, Vestas invested approximately US$318
million in R&D in 2008, which was about 3.8% of its
revenue
• Comparatively, Suzlon’s investment in R&D in the same
year was approximately US$10 million, 0.69% of its
revenue
• Vestas, supported by its global R&D network, had a
strong portfolio of wind technology patents (see Exhibit
3)
• It offered a variety of onshore and offshore wind
turbines, ranging from 850 kW to 3 MW
• Further, in the offshore era (see Exhibit 1, panel A), many
large firms including diversified players such as General
Electric (GE) and Siemens, entered the industry
• Their existing knowledge in a number of technological
domains, strong R&D focus and deep pockets intensified
the technology-based competition
• Apart from its European and American competitors,
Suzlon faced strong competition from Chinese
manufacturers, namely Sinnovel and Goldwind
• These manufacturers primarily catered to the rapidly
growing Chinese market
• Propelled by the enactment of new energy laws, China
accounted for nearly one-third of the total global
increase in wind power capacity in 2009, and by 2011-12,
it had become the world’s largest market with a capacity
of 25.8 GW
• China’s energy law of 2004 offered tax incentives and
preferential loans to renewable energy companies and
required Chinese utility companies to purchase the entire
amount of generated renewable power at a fixed price
• Apart from increasing the use of renewable energy, the
country implemented several policies to promote the
domestic turbine manufacturing industry
• Up until late 2009, the Chinese government enforced a
70% local content rule to reduce imports
• Moreover, foreign manufacturers were required to enter
into joint ventures with Chinese firms and were typically
required to transfer their technology to these firms
• As a result, the country had about 80 wind turbine
manufacturers, Sinnovel and Goldwind being the largest
of them
Acquisition of Hansen Transmission
• In March 2006, Suzlon acquired Belgium-based Hansen
Transmission, the second largest gearbox manufacturer
globally
• The acquisition of this manufacturing leader of wind
turbine drive trains and gearboxes was transacted at
US$563 million in cash to quickly de-bottleneck supply
issues
• This provided Suzlon with high-level vertical integration in
the wind turbine industry and the capacity for
manufacturing the major components of wind turbines,
not only gearboxes but also rotor blades, generators and
even towers
• Suzlon, along with Hansen, was supplying more than two-
thirds of the world’s gear-driven wind turbines by the end
of 2006
• Not only did Hansen have strong R&D capability, it also
owned a manufacturing facility based on cutting-edge
technology
• Suzlon intended to increase Hansen’s output of wind
turbine gearboxes fourfold — from 3,800MW to
14,200MW — by establishing new facilities for
manufacturing in China and India
• It even listed Hansen Transmissions on the London Stock
Exchange following a successful IPO
• The share issue not only raised US$584 million, it also
bolstered the confidence of investors
• This acquisition helped both companies; Hansen could
wipe out its debt while Suzlon could pursue its growth
objectives without facing supply shortages
• The move was a great success, with Hansen’s market
capitalization increasing to US$2.34 billion immediately
after the stock issue, more than four times the price
Suzlon paid to acquire i
• A few years later, in November 2011, Suzlon divested its
entire stake in Hansen to ease cash flow needs
• The acquisition had proved beneficial to Suzlon by
catering to its manufacturing and R&D needs
• Suzlon signed a long-term contract with Hansen to ensure
the supply of parts as and when required.
 Acquisition of REPower
• Founded in 2001, REpower was the result of a • This is not a problem since the customer really
merger of five German companies — three does only care about efficiency and reliability
turbine manufacturing companies, one company • Offshore installations are very complex due to
with research and engineering expertise and one the installation hassle, the salt water and air
company with project development skills exposure and the access for maintenance
• Its primary focus was the research, design and • In addition, the potential for efficiency gains is
development of wind turbines still greater
• REpower also invested its R&D budget in other • In addition, there are very strong forces at play
components such as rotor blades, controls, • Our technology can deal with those
electronic systems, tower and gear units but
manufactured them through subcontractors by • Despite its strengths, around 2004, REpower,
licensing out its technology faced with increasing costs and decreasing
profitability, began to attract bidders, including its
• Compared to Suzlon, it was a much leaner major shareholder AREVA S.A. of France, the
company largest manufacturer of nuclear power plants
• REpower quickly became the leader in wind • The French firm’s bid for REPower was an
technologies, including offshore multi-megawatt attempt to diversify its business interests
wind turbines
• It developed the first commercially deployed
offshore wind turbine, the 5 MW model installed
in the North Sea
• Talking about REpower’s technological
superiority, an executive of the company said:
• I believe that our technology is the best there is
• We continue to increase capacity but at the same
time reduce service demand
• Our technology is refined, highly reliable and
mechanically the most efficient
 Acquisition of REPower
• Suzlon tabled a significantly higher competing • Recalling the importance of the acquisition, a
offer (see Exhibit 6), thereby setting off a bidding Suzlon executive noted:
war with the French company • REpower acquisition was a bold strategic step
• Suzlon ultimately prevailed and acquired 33.85% • This allowed us to go into the field of offshore
of REpower shares and 87.1% voting rights in • These are real huge turbines
April 2007
• Onshore turbine capacity is usually 2MW
• The cost of the acquisition was €1.34 billion
• Compared to that, these have much larger
• This takeover of a European company by an capacities
Indian one signaled the overall globalization of
the wind industry, over which Europe was • Because of higher wind availability, these
steadily losing its domination capacities are possible
• Commenting on the acquisition, REpower’s then
CEO explained, “In the short term, we intend to
define a joint strategy with Suzlon to realize
synergies which result from the use of the
component capacities of the Suzlon group in
combination with REpower’s outstanding
technology”
• The deal was designed to occur in stages over a
period of about two years, during which Suzlon
would buy the stakes of two major stakeholders
of REpower — the Portuguese group Martifer
(25.4% stake) and AREVA (~30% stake)
• In a press release in June 2007, REpower stated:
• The innovative structuring of the deal is designed
to phase cash outflows for the entire controlling
stake ... while immediately accruing synergy
benefits ... the complementary product portfolios
 Acquisition of REPower
• So the goal was to get that technology from REpower
• As a first step towards this technical collaboration,
Suzlon and REpower, with equal stakes, formed
Renewable Energy Technology Center (RETC) in
Hamburg, Germany in February 2008
• RETC was meant to focus on research, innovation,
training, validation and technical processes
• REpower’s then Chief Technology Officer (CTO)
explained:
• In RETC, we intend to implement innovative projects
concerned, for example, with new materials and
manufacturing processes, with increasing efficiency or
with new drive concepts — in short, with everything that
will significantly influence the development of the next
REpower turbine generation
• A Suzlon executive added, “We are sharing resources in
this case and together we can implement investments,
which neither REpower nor Suzlon was able to do alone
in the past”
• The original goal of realizing synergies and accessing
REpower’s technological knowledge, however, remained
only on paper
• The acquisition of REpower, while celebrated in India,
did not receive a similarly favorable response in
Germany
• The German media lamented the potential loss of
strategic know-how and skilled jobs to India and the
erosion of Germany’s prowess in the wind power
industry
• Reports of a dispute between REpower and Suzlon
began to appear in February 2008, but were firmly
rejected by REpower
• However, in April 2008, The Wall Street Journal covered
the challenges Suzlon was facing in accessing REpower’s
technology
• When Suzlon requested REpower to share the blueprints
of its blades, REpower refused, taking cover under
German corporate law
• Suzlon, with 87.1% voting rights in the company, was
considered a minority shareholder because of its 33.85%
shareholding
• According to German law, a minority shareholder in a
company could be considered a competitor, in which
case the company was not required to share its technical
knowledge
• Commenting on technology transfer, an REpower
spokesperson explained, “We’re not sure we want to
give [the technical know-how] to a competitor”
 Challenges
• The global financial meltdown of 2008 caught
Suzlon on the wrong foot
• The collapse of Lehman
• Brothers, one of the biggest financiers of wind
power, put the brakes on Suzlon’s upward swing
as debt became both scarce and very costly
• Both Suzlon and REpower experienced a
reduction in sales, which intensified the pressure
on Suzlon’s financial performance
• Its falling profit margin and mounting debt
concerned investors (see Exhibits 4 and 5)
• Multiple challenges were threatening the
profitability of the company
• In a troubled global economy, it was not easy for
Suzlon to sustain its aggressive growth target of
50% per annum
• The increase in Suzlon’s debt largely came from
the REpower acquisition
• Given the problems that Suzlon faced with this
acquisition, a question that often arose was, did
Suzlon really need REpower’s technology?
• The answer, in fact, was simple: Suzlon knew that
offshore wind turbines were the next big thing
because offshore power generation utilized
stronger and steadier sea winds that increased
turbine “availability” multifold when compared to
onshore power generation
• Higher availability would lead to more electricity
produced per installed MW and hence cheaper
electricity generation
• However, it was not easy to install such huge
offshore turbines, and their connection to the
grid presented major roadblocks
• Moreover, the design and engineering of offshore
and onshore turbines were divergent activities
• An executive at GE noted:
• Comparing traditional land-based wind projects
with offshore projects is a little like comparing
the aircraft and aerospace industries ... Offshore
projects take the engineering science of wind
power to a new level of sophistication
• The physics and logistics involved with
foundations, towers, wave conditions, salt, power
transfers, etc., pose a great challenge offshore
 Challenges
• The diverse capabilities, risks and large capital
investment in offshore wind turbine projects required
the participation of a whole new set of industry
players
• These included firms from various sectors such as oil
and natural gas, electricity, shipbuilding and heavy
engineering
• A German wind industry expert observed:
• Offshore wind generation brought a new business
opportunity to shipyards
• Many shipyards in Germany and the U.K. entered this
industry
• Many of them could redeploy their assets and skilled
workers to manufacture steel foundations for wind
parks
• Those specializing in yachts and frigates used their
composite fiber material know-how to make rotor
blades for turbines
• In addition, many heavy engineering firms, for
example, those doing bridge construction also
entered the industry
• If you talk to those guys, they can quickly show you
how the blueprint for a bridge can be changed to an
offshore turbine foundation
• Offshore wind was a discontinuous change for the
industry, which resulted in increased entry and
fiercer competition
• A major shift came in the form of the intellectual
property rights (IPR) regime
• Even established wind turbine manufacturers who
had relied on informal innovation systems, such as
Vestas, started rethinking their R&D strategies
• Since REpower, with its technological prowess, was a
significant player in this market, Suzlon went after it,
rather than trying to build offshore technology on its
own
• To survive in the technology-driven wind power
market, Suzlon had to strengthen its in-house R&D
capabilities
• While it had dedicated R&D centers, its intellectual
property output so far had been significantly lower
than the competition (see Exhibit 3)
• Operating in different countries was advantageous,
but their diverse wind profiles demanded that Suzlon
have varied product offerings based on type of
blades, a turbine’s rated power and grid interface
• This requirement to change with every market
presented significant design challenges
• The need for different designs fed back to the need
for stronger R&D capabilities
 Challenges
• Further, cross- cultural integration of people from
different nationalities working towards a
common objective was more daunting than it
seemed
• It was difficult to manage the talent pool in high-
growth economies such as China and India since
employees had numerous opportunities before
them
• To make matters worse, there were reports of
turbine blades splitting at three wind farms of
Edison Mission Energy in the United States
• As many as 1,251 blades were recalled and the
balance order of 300 Suzlon turbines, which were
to be delivered in 2009, was cancelled
• Ashish Dhawan, one of the senior managing
directors at ChrysCapital Investment Advisors,
observed that the coin could flip in either
direction—Suzlon would either be a huge success
or would blow up altogether
• The company responded to the blade-cracking
issue by introducing a retrofit program for the
faulty blades, thus retaining the customer
• Tanti knew that the task of maintaining excellent
product quality was particularly important for
emerging market firms, which typically lacked
legitimacy and credibility
• Therefore, one of the immediate challenges
before Suzlon was to ensure that no such quality
jeopardizing incident was repeated
 Integration of REpower
• Suzlon’s challenges made the integration of • The process started with accessing lower-end
REpower extremely critical manufacturing knowledge through contract
production of REpower’s multi-megawatt
• For technology access, Suzlon would need to
turbines in India
increase its ownership stake, become a
majority shareholder and complete a • Commenting on the relationship with Suzlon,
domination agreement a REpower R&D executive noted:
• This agreement was basically a control and • They [Suzlon] are our shareholders
profit transfer agreement enabling the
majority shareholder to take over the • They [certainly] brought in money
management of the acquired company • They know their business very well
• By September 2008, Suzlon had a 67.22% • They have some great marketing expertise ...
stake and 89.7% voting rights in REpower we respect that
• Suzlon then tried to initiate the domination • They have helped us on some
agreement [manufacturing-related] process optimization
topics, but [R&D- wise] they are pretty much
• However, REpower was in the midst of hands off ... They listen to what we have to
negotiating with a syndicate of banks to say [in R&D matters]
finance its future growth
• The financing agreement prohibited REpower
from entering into a domination agreement
with Suzlon
• Constrained by the financial crisis and its own
operating challenges, Suzlon finally agreed to
withdraw its domination agreement in
October 2008
 Domination Agreement
• Definition of Domination Agreements
• Domination agreements are defined in Article 106 of the Trade Registry Regulation (“Regulation”) published in the Official Gazette dated 27.01.2013 and numbered 28541. A domination agreement is defined as an agreement whereby one of the parties has unconditional authority to instruct the managing body of the other
party which is an equity company; without there being any direct or indirect participation relationship between said parties.
• In the domination relationship, the company giving instructions is the dominant company and the one receiving instructions is the subsidiary company. As a result of the dominance relationship between the parties, the dominant company leads and manages the subsidiary company by giving instructions.
• The domination relationship between the dominant company and the subsidiary company
provides uniform management within the group companies. Therefore, the uniform management resulting from the domination agreement benefits the group companies[1] (file://ibmserver/ortak/ofis/Buro%20M- Z/Newsletter/2014/OCAK/ENG/2014%2001%20ES%20Hakimiyet%20Sozlesmeleri%20ENG.doc#_edn1)
• http://www.erdem-erdem.av.tr/publications/law-post/domination-agreements/ Page 2 of 7
• .
• Domination Agreements - Erdem & Erdem 11/11/18, 10'54 PM
• The dominant company gives instructions to the subsidiary company on basic matters
such as the management of the company, determination of targets, coordination of enterprises’ activities and designation of high level management and does not interfere
with the daily activities and operation of the subsidiary company[2] (file://ibmserver/ortak/ofis/Buro%20M- Z/Newsletter/2014/OCAK/ENG/2014%2001%20ES%20Hakimiyet%20Sozlesmeleri%20ENG.doc#_edn2)
• The transfer of control of all the authority of the subsidiary company to the dominant company is not required in order to establish a domination relationship. When the dominant company leads and directs the management of the subsidiary company in one or more areas, a domination relationship may be considered to
exist as well.
• Legal Nature of Domination Agreements
• The domination agreement between the dominant and subsidiary companies is formed pursuant to the law of obligations. Contractual rights and obligations arise from domination agreements. Domination agreements thereby constitute the basis for contractual group companies.
• Domination in contractual group companies is based neither on capital nor on the
majority of members in the managing body; it only depends on the domination agreement concluded pursuant to the law of obligations between two or more companies[3] (file://ibmserver/ortak/ofis/Buro%20M- Z/Newsletter/2014/OCAK/ENG/2014%2001%20ES%20Hakimiyet%20Sozlesmeleri%20ENG.doc#_edn3)
• Approval of General Assembly in Domination Agreements
• Domination agreements are subject to the approval of the subsidiary company’s general assembly. When the domination agreement is concluded, the subsidiary company starts to act for the benefit of the group of companies by changing its management structure.
• The subsidiary company, no longer being managed by its own bodies, is operated and controlled by another company and therefore becomes dependent through a domination agreement, which must be submitted for the approval of general assembly[4] (file://ibmserver/ortak/ofis/Buro%20M-
Z/Newsletter/2014/OCAK/ENG/2014%2001%20ES%20Hakimiyet%20Sozlesmeleri%20ENG.doc#_edn4)
• Moreover, as is frequently observed in practice, the dominant company may be the shareholder of the subsidiary company as well. In such cases, the shareholder dominant company is required to vote in the subsidiary company’s general assembly. However, pursuant to Article 436 TCC, the shareholder of a company cannot
vote with respect to
• http://www.erdem-erdem.av.tr/publications/law-post/domination-agreements/ Page 3 of 7
• .
• .
• .
• Domination Agreements - Erdem & Erdem 11/11/18, 10'54 PM
• personal acts and transactions between itself and the subsidiary company under its dominance. Therefore, the dominant company that is the shareholder of the subsidiary company can only vote on acts and transactions in which it holds no special interest.
• Registration of Domination Agreements
• As per Article 106/2 of the Regulation, in order to gain validity, domination agreements must be approved by subsidiary company’s general assembly; and then registered and announced. This registration and announcement of the domination agreement enables third parties to become aware of such agreement.
• Domination agreements shall not be considered valid and effective until registered and announced in the trade registry. However, the invalidity of a domination agreement shall not prevent the liabilities and responsibilities regulated under the provisions of the TCC and other Codes. Therefore, as per Article 198/3 TCC, even
if the domination agreement is not registered and announced in the trade registry, the dominant company and its managing body shall be held liable and responsible.
• Liability Arising from a Domination Agreement
• Liability of the Dominant Company
• The dominant company must not use its control illegally against the subsidiary company through the domination agreement. Preventive measures are foreseen against the dominant company’s illegal use of domination with Article 202 TCC.
• In cases where the dominant company causes its subsidiary to incur losses, the dominant company shall be obliged to compensate such losses. In the event that the determined compensation is not paid, each shareholder of the subsidiary company may claim compensation from the dominant company and from members
of its board of directors. If the subsidiary company is not compensated, the shareholders and creditors of the subsidiary company may file suit for the damages incurred.
• The illegality herein results from a transaction by the dominant company, which damages the subsidiary company, its shareholders and creditors.
• The members of the subsidiary’s board of directors are obliged to execute transactions as instructed by the dominant company even if they would prefer not to do so. In such circumstances, members of the subsidiary’s board of directors may conclude an agreement with the dominant company in order to make the
dominant company liable to shareholders and creditors for any legal results.
• Liability of the Subsidiary Company
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• Domination Agreements - Erdem & Erdem
• 11/11/18, 10'54 PM
• In accordance with the domination agreement, the subsidiary’s board of directors shall be responsible for complying with the dominant company’s instructions; otherwise they may be held liable. However, where the dominant company gives illegal instructions, the managing body of the subsidiary company shall neither be
held responsible for nor obliged to exercise such instructions.
• However, pursuant to Article 203 TCC, when the dominant company establishes full domination over the subsidiary company, which means, when the dominant company directly or indirectly holds one hundred percent of the shares and voting rights in the subsidiary company, the members of the dominant company’s
board of directors may give instructions to the subsidiary company with respect to its operations and management, even if such instructions cause the subsidiary company to incur losses; under the condition that such instructions stem from specific and concrete policies of the group of companies. When directors of the
subsidiary company obey the instruction of the fully dominant company, they shall not be held liable to the shareholders or subsidiary company.
• Conclusion
• The existence of contractual group companies may stem from a domination agreement established between the companies. As a result of the domination agreement concluded between the dominant company and subsidiary company, the beneficial aim of the group of companies can be reached by forming a uniform
managing structure.
 What Next?
• Contemplating Suzlon’s • We hope to have the company
journey over the last several back in a position of strength
years, Tanti remained bullish by FY15
on Suzlon’s growth forecasts: • In Tanti’s mind, the worst was
• I am a fighter, I will not give up over. But was it? Could Suzlon
• Last two years, our entire move away from the image of
focus was on liability a “shareholder” and
management successfully integrate the
German firm?
• Now that we have completed
the process, we are focusing
on increasing execution and
improving operational
performance ... We believe the
worst is over and that we are
moving in the right direction,
with a more positive external
environment
• Suzlon Energy Ltd. is a wind turbine supplier based in Pune, India. Formerly ranked
by MAKE as the world's fifth largest wind turbine supplier,[2]it has since dropped
out of the Global top ten rankings (as of 2014) due to extensive losses and inability
to repay debts.[3] The company's website claims to have over 17,000 MW of wind
energy capacity installed globally, with operations across 18 countries and a
workforce of over 8,000.[4] In 2016, the company finally posted a profit EBITDA
 after losses over seven consecutive years.[5]
• The company is listed on the National Stock Exchange of India (NSE:SUZLONEQ)
and on the Bombay Stock Exchange (BSE:532667). Though once considered a
favourable stock, and a favourite of the stock broker Rakesh Jhunjhunwala, it fell
out of favour as the company posted continuous losses. [6] It fell from a high of Rs.
68.75 in 2010 to a low of Rs. 18.5 in 2014, with a single day drop of 10% in
September 2014.[7] It continues to trade low at less than Rs. 17 per share in 2018. [8]
• Company structure[edit]
• Suzlon is a vertically integrated wind power company. It makes and installs wind
turbines, and manufactures blades, generators, panels, and towers in-house. It is
integrated downstream and delivers turnkey projects through its project
management and installation consultancy, and operations & maintenance services.
 Synopsis
• Set in 2013, “Balancing the Power Equation Suzlon Energy Limited,” is a case that
documents the challenges encountered by an emerging economy multinational
enterprise (EMNE) when accessing research and development (R&D) knowledge
from its technologically superior subsidiary
• Further, it shows the strategies that Suzlon, an Indian wind turbine manufacturer,
adopted to catch up with global industry leaders
• It tracks how Suzlon’s astute and aggressive chairman, Tulsi Tanti, led the company
to develop the capabilities to perform higher value added activities despite being a
late industry entrant and one, moreover, from an emerging economy. The setting
for the case is the global wind power industry, an emerging high-tech industry. The
case thus shows that EMNEs are entering and succeeding not only in mature
industries but also in newly emerging industries.
• By combining its knowledge of Indian market conditions and an operational
knowledge of foreign technologies, Suzlon devised a customer-centric strategy that
assured its dominance in the Indian wind power market a mere four years after its
inception. Further, by acquiring technologically superior firms, Suzlon made a mark
in the global wind power industry dominated by European and American
companies. While most of its acquisitions successfully served their purpose,
Catch-Up Strategies
EMNEs
Agency Theory
Resource Dependence Theory
 Objectives
• Exhibits the catch-up strategies of EMNEs to
reach on par with the industry leaders
• Accordingly, it can be used to show how EMNEs
acquire the necessary resources to develop
production and innovation capabilities, how they
leverage their home markets while going global,
and how they utilize their late entry to catch up
rapidly by cherry-picking acquisition targets
• The case can be used to study the
internationalization of firms from emerging
economies
• The emerging industry setting can be used to
discuss industry lifecycles and different
competitive strategies in each of the lifecycle
phases
• It can be used to discuss EMNE entry strategies in
each of the phases as the case illustrates the
growing phenomenon of emerging economy
firms entering newly emerging industries
• The case is primarily designed to explore the
relationship between an EMNE headquarters and
its technologically superior subsidiary in the
context of intra-MNE knowledge sharing
• It shows that, in the case of EMNEs, some of their
subsidiaries might be more established than the
EMNE headquarters and may control key
resources
• Such subsidiaries are likely to command more
negotiating power with respect to the
headquarters
• In such a case, accessing subsidiary resources can
be challenging for the EMNE headquarters
• Agency theory and resource dependence theory
may be applied to solve the headquarters’
dilemma
 Readings
• On EMNE catch-up strategies: • Mudambi, R., and Navarra, P. “Is Knowledge
Power? Knowledge Flows, Subsidiary Power
• Awate, S., Larsen, M., and Mudambi, R.
and Rent- seeking within MNCs,” Journal of
“EMNE Catch-up Strategies in the Wind
Turbine Industry: Is there a Trade-off International Business Studies, 2004, 35(5):
between Output and Innovation 385-406.
Capabilities?” Global Strategy Journal, 2012, • Awate, S., Larsen, M., and Mudambi, R.
2(3): 205-223. “Accessing vs sourcing knowledge: a
comparative study of R&D
• Mudambi, R. “Location, Control and
internationalization between emerging and
Innovation in Knowledge-intensive
Industries,” Journal of Economic Geography, advanced economy firms” Journal of
2008, 8(5): 699-725. International Business Studies, 2014, Advance
Online Publication, doi: 10.1057/jibs.2014.46
• On emerging industries and industry
lifecycles: • Porter, Michael E. “The Five Competitive
Forces that Shape Strategy,” Harvard
• Anderson, P., and Tushman, M. Business Review, January 2008, 86(1): 79-93.
“Technological Discontinuities and Dominant
Design: A Cyclical Model of Technological
Change,” Administrative Science Quarterly,
1990, 35(4): 604-633.
• Klepper, S. “Industry Life Cycles,” Industrial
and Corporate Change, 1997, 6(1): 145-181.
On MNE-subsidiary relationships:
• Gupta, A., and Govindarajan, V. “Knowledge
Flows and the Structure of Control within
Multinational Corporations,” Academy of
 Discussion Question

Analyze the competitive environment of the

global wind power industry and discuss the
temporal variations in industry competition
 Discussion Question
Discuss Suzlon’s competitive positioning at the
following time points:
– a)  From its entry in 1995 to 1999
– b)  After it became the Indian market leader in
1999
– c)  After its IPO in 2005
– d)  Circa 2008, after initiating the REpower
acquisition
– e)  In 2014
Temporal Variations in Industry Competition
Porter’s Five Force Model
Competitive Environment of the Global Wind
Power Industry
• Porter’s five force model1 can be used to assess
the competitive environment
• The negotiating power of suppliers in this
industry is low as many turbine manufacturers
are vertically integrated and manufacture key
turbine components in-house to reduce their
dependence on suppliers
• When discussing supplier power, the instructor
may point out the differences between Suzlon
and REpower in their initial years
• The case shows how Suzlon focused on vertical
integration whereas REpower relied on
specialization and contract manufacturing
• Suzlon’s vertical integration decision was driven
by cost control, quality assurance and on-time
supply to ensure timely (and at times, faster)
delivery of orders; in short, its aim was to reduce
its dependence on suppliers
• On the other hand, REpower outsourced
component manufacturing to subcontractors by
licensing out its technology
• The company’s main focus was on R&D so as to
increase the product’s value-add through
technological advancements
• The company also invested in researching sub-
component technologies
• Such a specialization strategy requires that
suppliers do not hold up the focal firm’s business
• It was the technological expertise of REpower
that increased the company’s bargaining power
with respect to its suppliers
• The company retained the higher value-added
tasks of R&D and marketing and only relied on
suppliers (i.e., contract manufacturers) for the
lower value- added task of manufacturing, using
licensed technology
• Thus, the switching costs for changing suppliers
are low (or with sufficient capital investment,
REpower could potentially integrate vertically)
• Suzlon on the other hand, did not have that kind
of technological knowledge and relied on its
suppliers for technology as well as manufactured
components in the initial years
 Competitive Environment of the Global
Wind Power Industry
• In such a scenario, suppliers can have high
negotiating power if the focal firm does not
integrate vertically
• Suzlon’s initial decision to vertically integrate may
have been driven more by a desire to reduce
hold-ups and lost business due to supply
uncertainties than by quality parameters
• Quality parameters became more important later
in its lifecycle
• If that is the case, can Suzlon consider
outsourcing some of its sub-component
manufacturing today?
• However, it is important to note that competing
manufacturers also have achieved a significant
amount of vertical integration, suggesting that
integration may be an industry trait
• As is often the case with emerging industries,
demand often fluctuates
• In the case of wind power, demand is driven by
government regulations such as production tax
credits for wind power producers
• Demand fluctuations may prompt companies to
manufacture components internally in order to
have tighter control over inventory
• Wind farm projects are capital intensive with a
high initial cost of establishment
• This includes the cost of a wind turbine (70% of
the initial cost of establishment), installation and
construction
• In 2013, the price tag on an average wind turbine
was about US$1.11 million/ MW
• Today, turbines with a rated power output of
2MW are fairly standard for onshore projects
• Given the high initial investment in wind projects,
the buyers have reasonably high negotiating
power
• As an alternative energy source, wind power is in
direct competition with traditional energy
sources as well as other renewable sources, such
as solar power
• The decision to invest in wind projects depends
to a large extent on the government support
given to the different energy industries
 Competitive Environment of the
Global Wind Power Industry
• Thus, the initial decision to invest in wind is
significantly influenced by the other options
available
• However, once invested in wind, the switching
costs for these substitutes are high
• Of course, if the substitutes become attractive,
the wind investor may not re-invest in wind but
diversify to other options, oftentimes, other
renewable energy sources, such as solar power
• Therefore, the threat of substitutes is assessed to
have medium impact
• Over the years, the industry has witnessed the
entry of firms with diverse backgrounds
• For example, in the case of offshore wind, large
conglomerates such as General Electric (GE),
Siemens and Mitsubishi have entered the
industry
• Thus, the threat of new entrants is assessed to be
high
• The industry experiences intense rivalry among
competitors as they closely match each other’s
product offerings
• They continuously increase their R&D
investments to push forward the technology
frontier
• Several of the firms are global and compete for
market share in every national market
 Discussion Question

Why these contrasts exist?

What is it that REpower had that Suzlon did not
have?
 Discussion Question

Why did Suzlon’s acquisition of REpower not go

as planned?
What were the key roadblocks?
How did Tanti deal with them?
Industry Lifecycle Model
Technological Discontinuity
Determinants of Dominant Design
 Discussion Question

When should a firm from an emerging economy,

with limited technological knowledge, enter the
industry?
 Discussion Question

Why entry and success could be less eventful post-

dominant design due to greater certainty of technology
and focus on process/ incremental innovation, and
accordingly, high business growth?
 Temporal Analysis of the Industry
• For example, the innovative use of wind to
generate electricity was discovered in the late
eighteenth century
• But the industry really came into existence post-
World War II and took off in the early 1980s after
the oil crisis of the 1970s
• Technological discontinuity and the experimental
phase that follows it
• The case gives rich details on the competition
between two different designs of wind turbines
• That can be used to highlight the nascent phase
of the industry where several firms enter with
different product designs
• The designs of many of these firms fail
• The surviving designs (surviving firms) lead to a
dominant design
• Determinants of dominant design beyond
technological superiority
• While Danish wind turbine design was not the
most sophisticated in terms of technology, it was
more robust and reliable and stood the test of
Californian winds
• Examples of designs that were not particularly
sophisticated yet became dominant in other
industries
• A famous example of this is the QWERTY
keyboard layout
• What follows dominant design?
• The industry experiences shakeouts
• The surviving firms begin to grow
• There is more certainty in terms of technology,
and innovations may be incremental
• It may be possible to succeed in such an
environment with imitative strategies
• The phase of growth post-dominant design can
be disrupted by another technological
discontinuity, causing the cycle to repeat
• Newly emerging industries are especially prone
to frequent discontinuities given the evolving
nature of technology and business
• As noted in the case, beginning in the early
2000s, offshore wind power was a technological
discontinuity
 Temporal Analysis of the Industry
• It altered the nature of competition and made it
more technology-focused, particularly with the
arrival of GE and Siemens, which had a strong
technological background in related industries
• Incumbents such as Vestas had to reconsider
their technology strategy
• For its part, Suzlon responded with the
acquisition of REpower
• Even if EMNE entry is more likely to succeed
post-dominant design, emerging industries are
considered an inhospitable terrain for EMNEs
• Evolving/ uncertain technologies and frequent
discontinuities change the established dominant
design
• There may be demand uncertainty
• The knowledge disadvantages of EMNEs are
especially severe as they may not be able to
respond quickly to changing technologies
• However, there may be some advantages offered
by emerging industries to EMNE entry
• Industry leaders are smaller in size
• The bigger players wait and watch before
entering emerging industries
• Despite the uncertainties, if they do decide to
enter, they usually do so by spinning off a smaller
entity before entering the market.
• In short, competitors are smaller firms
• Even if EMNEs do not invest in the core
technologies, there are intermediate
technologies available in the market
• EMNEs can start by becoming suppliers to
emerging industry leaders
• The ramp to touch the technology frontier is
shorter due to the industry’s nascence
 Discussion Question

Discuss Suzlon’s competitive positioning at

different time points
Output vs. Innovation Catch-Up
Imitative Strategy
 Suzlon’s Competitive Positioning
• From its entry in 1995 to 1999
• Suzlon entered the industry as a supplier of
Südwind turbines
• However, its business was not restricted to only
selling the turbines but included installation,
operation and maintenance
• Further, with its in-house manufacturing
capabilities, it moved up the value chain to
perform mid-tech activities, i.e., making turbines
using standard technologies
• With respect to competitors, Tanti not only
controlled costs to realize lower prices but also
used his local market knowledge to provide a
unique service offering
• His customer-centric strategy resulted in Suzlon
claiming about 50% market share in India
• After it became the market leader in India in
1999
• Further growth required entering other markets
• Stable operations in India provided Suzlon with
manufacturing know-how, complementary assets
and sufficient financial capital to consider
entering the global market
• What it lacked was a modern product portfolio to
compete globally
• As shown in panel B of Exhibit 1 in the case,
Suzlon's turbines, although good by Indian
market standards, lagged behind the industry
standard in capacity and efficiency
• Further, increased competition and rising
concerns about IPR within the industry meant
that technology-seeking cooperative agreements
with foreign firms were harder to establish
• As a result, Suzlon had to undertake a series of
acquisitions in foreign markets to obtain the
latest technologies and enter new markets
• With Europe at the center of the global wind
power industry, Suzlon focused on acquiring
European talent
• Suzlon benefited from the nascence of the wind
turbine industry, which had many smaller firms as
potential acquisition targets
• This may not be the situation in mature industries
as smaller firms (for example, sub- component
suppliers) may not exist as they may have already
been acquired
 Suzlon’s Competitive Positioning
• Suzlon’s 2000-2004 acquisitions show a clear
focus on establishing its business and catching up
with the global competition in terms of product
offering
• Output versus innovation catch-up, the emerging
economy late entrants may have a particular
focus on output catch-up to develop production
capabilities before considering innovation
capabilities
• The reason is that output catch-up is faster and
comes with a more certain revenue stream than
innovation catch-up
• EMNEs tend to acquire those companies whose
manufacturing facilities will help them get the
desired product and rapidly take it to market
• The result is that the EMNE’s product offering
quickly achieves global standards as shown in the
case of Suzlon (case Exhibit 1, panel B)
• However, this knowledge management strategy is
imitative
• It does not translate into innovative capabilities
• In an emerging industry, the ramp from entry to
the technology frontier is shorter due to
industry’s nascence
• Thus, output catch-up can be very fast, as shown
in this case
• With acquisition targets available, Suzlon was
quick to make its mark in global markets,
securing sixth position in the world in terms of
installed turbines in 2004
• Thus, although imitative, Suzlon’s strategy of
acquiring output or production knowledge
positioned it well with respect to industry
leaders, as shown by its global ranking
 Discussion Question

Whether these large acquisitions were really

necessary?
 Alternative Strategies
• Alternate strategies that may have been available
to Suzlon to achieve its global ambitions
• After becoming the market leader in India,
further growth required that Suzlon go global
• But going global was no breeze, particularly for a
company from India, a country known for its
software exports but not for its hardware
expertise
• Moreover, the products it was offering in India
were far behind global standards
• Thus, Indian market leadership was virtually a
glass ceiling
• Breaking this ceiling required a strategic choice:
whether to cooperate with an incumbent and
assume a subsidiary role, or compete with the
incumbents and emerge as an EMNE
• Selecting the latter option meant facing severe
competition
• Suzlon elected to face the competition
• In this adversarial scenario, it had no choice but
to undertake targeted acquisitions
• c) After Suzlon’s IPO in 2005
• The success of its IPO helped Suzlon achieve its
growth plans
• The Hansen and REpower acquisitions show that
the company was changing its focus from output
to developing innovation capabilities
• The success of the IPO gave Suzlon the capital
required to make these big ticket acquisitions
• As noted in the section on alternate strategies
above, the adversarial competitive scenario also
played a role in these acquisitions
• However, in the case of Hansen, one may
question the need to acquire the world’s second
largest gearbox manufacturer
• As noted in the case, the acquisition fulfilled
Suzlon’s supply and R&D needs
• But could those needs not have been fulfilled by
acquiring smaller gearbox firms?
• The answer, with respect to supply needs, is yes,
but the Hansen acquisition appears to be driven
by Suzlon’s need to develop its R&D capabilities
• An even subtler reason is the need for visibility,
legitimacy and brand- building
 Alternative Strategies
• With Hansen in its fold, Suzlon controlled
two-thirds of the world’s supply of gear-
driven turbines
• Suzlon, at this stage, could not be considered
an industry innovator; it was a fast follower
• Its competitive strengths were still associated
with matching the industry’s state-of-the-art
product
• Suzlon’s imitation capabilities, however,
appear quite strong as demonstrated by its
business performance (see case Exhibit 4)
• Circa 2008, after initiating the acquisition of
Repower
• The case and Suzlon’s unrelenting growth
story take a turn after 2008
• The REpower acquisition increased the
company’s debt, and the global financial
crisis and product recall issue only made the
company’s position worse
• In addition, the major goal behind the
REpower acquisition — technology access —
was not realized immediately
• Without access to REpower’s technology,
Suzlon had only gained more debt from the
acquisition
• With slowing sales, Suzlon incurred losses for
the next few years after 2008 (see case
Exhibit 4)
•  In 2014: The financial figures from Exhibit 4
in the case may give the impression of
continued troubles in 2014, as the company’s
total net losses went up in fiscal 2012-2013
• The company may be seen as being in a weak
financial position in 2014. However, it is
important to note that the REpower
acquisition was completed in 2013, and this
may put Suzlon in a position to apply the
technological knowledge it had finally gained
to its existing portfolio – something not
reflected on the financial statements yet
•
 Discussion Question

Why did the acquisition of REpower not go as

planned?

What were the key roadblocks? How did Tanti

deal with them?
advanced- economy MNE (AMNE)
 Alternative Strategies
• On the surface, it may appear that it was German
corporate law that was preventing Suzlon’s
access to REpower’s technology
• Suzlon may seem to have been unaware of or to
have underestimated the impact of this law
• However, the case clarifies that the law provided
REpower with the option to not share its
technology
• It was in no way binding on the company
• Clearly, there were more factors involved than
just German corporate law
• The case shows that REpower had initially agreed
to realize synergies with Suzlon
• REpower’s CEO talks about combining Suzlon’s
component capacities with REpower’s technology
• A press release by REpower reinforces the
company’s intention to create robust and cost-
effective wind turbines by realizing synergies
• The first hint of divergence from this goal is in a
quote from REpower’s CTO with reference to the
Renewable Energy Technology Center (RETC)
• RETC was a joint investment; however, in the
quote, the CTO clearly refers to a next generation
REpower turbine
• It can be argued that the quote (collected by the
authors from media reports) may have been
taken out of context and is therefore misleading
• However, following the formation of RETC, there
is evidence to suggest a dispute between the two
companies
• It may be that REpower took cover under
German corporate law to avoid sharing its
technology
• The reason for this could be the unenthusiastic
response to the acquisition in Germany
• REpower might have responded to investor fears
by avoiding technology sharing
• As Suzlon was fairly a new player in the industry,
investors may have been uncertain of its survival
in the industry
• What if Suzlon were to exit the industry or divest
REpower after acquiring its technology?
 Alternative Strategies
• The legitimacy issues faced by EMNEs at this
point.
• The case becomes even more involved after
Suzlon demonstrates its commitment by
increasing its stake in REpower from 33.85% to
67.22% (see case Exhibit 6) and tries to execute a
domination agreement
• Unfortunately for Suzlon, the domination
agreement could not be completed because
REpower was to receive €600 million growth
financing (see case Exhibit 6) and was prohibited
from signing the agreement
• If Suzlon, at that point, had been in a position of
financial strength, it might have been able to
provide internal financing, which might have
prevented further delays in technology access
• If it were only a question of commitment, it must
be noted that Suzlon had shown its commitment
to REpower by increasing its stake and offering to
exercise the domination agreement
• Additionally, the syndicate of banks from whom
REpower was seeking financing had prohibited
the company from signing a domination
agreement but not from transferring its
technology
• Thus, it was up to REpower to decide whether to
share its technology
• Clearly, the issue seems to be driven by factors
other than the contractual and legal clauses set
by third parties or Suzlon’s commitment to the
wind industry and REpower.
• Rather, it may have been driven by REpower’s
ambition to survive on its own
• From case Exhibit 6, it becomes clear that Tanti
was slowly replacing REpower executives and
board members with Suzlon insiders
• While several of the key people at REpower were
replaced (such as the founding CEO), the
founding CTO was not replaced until March 2013
• Clearly, REpower’s CTO had a lot of negotiating
power in the company
• One possible reason is that the company was
technology-focused and a celebrated innovator,
and its CTO, by virtue of his position, was
instrumental in devising the company’s
technology strategy and its product development
 Alternative Strategies
• REpower’s CTO was largely responsible for its
technological stature in the industry and thus was
valued highly in the company and also by Suzlon
• In addition to technology strategy, a CTO of a
company also manages its technology licensing
agreements
• With respect to Suzlon, REpower’s CTO had a
large role to play in the negotiations
• It is interesting to note that, after replacing
REpower’s CTO, Suzlon quickly embarked on a
reorganization that included 750 job cuts and the
globalization of central functions, R&D included
• In addition to replacing REpower executives, Tanti
remained committed to integrating REpower with
Suzlon and increased Suzlon’s ownership stake
over time to 100%
• After making REpower a wholly-owned subsidiary
of Suzlon, he began sending manufacturing jobs
to India (see case Exhibit 6)
• Although the knowledge acquired through such
jobs has less value add than R&D activities, it
certainly was a step towards deeper integration
• Changing the name of the company to Senvion
was another big step
• The name seems to have been carefully chosen
to have some resemblance to Suzlon (as does the
new company logo — )
• Interestingly, Tanti did not name it Suzlon
• He perhaps wanted to create a different brand
that would be more closely associated with value
for innovation than the Suzlon brand
• Key difference between an EMNE and a
traditional advanced- economy MNE (AMNE)
with regard to intra-MNE knowledge sharing. In a
traditional AMNE, the headquarters is often at a
higher knowledge level than the subsidiaries
• It is the headquarters that formulates subsidiary
R&D strategies and provides resources
(knowledge) to enable the subsidiary’s catch-up
with respect to other MNE units
• The net knowledge flow is often from the
headquarters to the subsidiaries
• In the case of an EMNE, the knowledge profile is
reversed
 Alternative Strategies
• Since R&D subsidiaries are acquired firms, they
are often at a higher knowledge level than the
EMNE headquarters
• It is often the EMNE’s strategy to cherry-pick its
acquisition targets to obtain technological know-
how
• In such a case, it is the subsidiary that is in a
position to provide knowledge to the
headquarters
• It is well known in the MNE literature that the
control of knowledge gives MNE units more
bargaining power
• Such units may use their knowledge advantage to
retain relative power, creating concerns for
opportunism, hold-up and knowledge hoarding
• When the unit with the knowledge advantage is
the headquarters and the subsidiary is the
knowledge recipient (for example, in case of a
traditional AMNE), this power play is less of a
problem
• This is because it is the headquarters that devises
the subsidiary’s R&D mandate
• If knowledge is to be transferred to the
subsidiary, the headquarters has every incentive
to ensure a smooth transfer
• In principal-agent terms, this case can be seen as
the principal (headquarters) providing resources
(knowledge) to the agent (R&D subsidiary)
• However, when the headquarters is the recipient
of knowledge from a powerful subsidiary (as in
the case of an EMNE), a different picture emerges
• Specifically, as the subsidiary (the agent) is more
knowledge-advanced and thus powerful than the
headquarters (as was the case in Suzlon’s
acquisition of REpower), its opportunistic and
rent-seeking behavior can become a problem
• For example, REpower took shelter under
German law and exercised its power to refuse to
share its advanced R&D knowledge with Suzlon
• Suzlon had to negotiate with REpower to initiate
the transfer of even lower-end manufacturing
knowledge
• Hence, due to its superior knowledge, the
subsidiary
 Alternative Strategies
• has greater bargaining power with respect to the
headquarters and may exploit this for
opportunistic reasons
• Similar situation may of course arise when an
AMNE acquires a knowledge dominant firm and
tries to access knowledge
• However, the power imbalance may not be so
great as the AMNE may already be at higher
knowledge level (compared to an EMNE) and the
knowledge gap between its headquarters and the
knowledge dominant subsidiary may be smaller
than in the case of an EMNE
• Managerial implications
• The EMNE strategy of acquiring knowledge-
advanced firms to obtain higher-end knowledge
may result in rapid production catch-up, with the
EMNE gaining the acquired firms’ knowledge and
imitating their production practices to improve its
own product
• But the acquisition strategy may expose the
EMNE to subsidiary opportunism
• EMNE managers must be extra vigilant when
deciding on and executing acquisitions, especially
when the targets are larger established firms
 Discussion Question

How should Tanti deal with the issues that face

him at the end of the case?
 To be Done
• Although the process of formal
integration has started, it remains to be
seen how effectively the cultures are
integrated
• REpower’s culture is innovation
focused whereas Suzlon’s culture is
output/ business focused
• Suzlon needs to support REpower’s
innovative approaches to ensure a
continued stream of innovations
• While REpower’s CTO has been
replaced, the resident engineering
talent needs to be retained to ensure
that the organizational knowledge
developed over the years stays with
the company
• Although the Senvion board consists of
Suzlon insiders, Tanti keeps the
company separate from the Suzlon
group and it has its own management
team (i.e., CEO, CTO, CFO and COO)
• As a separate entity, Senvion can be
given more freedom in terms of its
technology strategy, while receiving
continued organizational support from
the parent group, Suzlon
• This is a well-known management
practice when an MNE unit is charged
with special responsibilities such as
generating innovations (for example,
XEROX Corporation’s Palo Alto
Research Center)
 What Happened?
• On January 22, 2015, Suzlon signed an
agreement with a US private equity firm to sell
100% of its stake in Senvion for an all cash
transaction valued at €1 billion
• The decision was taken to reduce Suzlon's debt
obligations in India
• Further, Suzlon announced that it would use
Senvion's offshore technology by paying a
license fee
• Senvion S.A. (formerly REpower Systems SE)
is a wind turbine manufacturer founded in
2001 in Germany, majority owned by the 
private equityfirm, Centerbridge Partners
 since April 2015.[4][5][6][7]
•  
 Why Senvion was Sold?
• Mumbai: Top technology. Market leadership. High profitability. Who would want to give up such a prized subsidiary?
• Few, unless you are Suzlon Energy Ltd, the world’s fifth-largest wind turbine maker, which on Thursday agreed to sell its German arm Senvion SE to American private equity firm Centerbridge Partners LP for €1 billion, or around Rs.7,200 crore.
• The reason? To reduce debt burden, which stood at  Rs.17,323.23 crore on a consolidated basis, as of 30 September. Suzlon is expected to retire its high-cost rupee debt and save more than Rs.500 crore in interest cost annually as a result of this sale. 
• But that’s the obvious part. The question is, do you sell your crown jewel for that?
• Let’s start from the beginning.
• When Suzlon met Senvion
• It was in 2007 that Suzlon purchased Senvion, then called REpower Systems, for €1.4 billion, mostly with borrowed money. At that time, experts had hailed the acquisition as a smart move to gain technological expertise and a beachhead in Europe, since Suzlon was diversifying into various international markets.
• With the acquisition, Suzlon hoped to secure superior technology, talented management and access to lucrative international markets, thereby turning into a global company. 
• The objectives were met, Suzlon executives said on Thursday. 
• “Senvion helped Suzlon Energy to optimize product offerings and market offerings. It helped in turning Suzlon Energy into leaders in offshore wind energy sector with a sharp focus in the markets,” a person familiar with the development said. Senvion soon became one of the most profitable assets for Suzlon Energy. It now accounts for the bulk of Suzlon’s
orders and revenue. 
• In February 2014, Suzlon Group unit REpower Systems SE changed its name to Senvion SE. The company has been using the name REpower under licence from a Swiss company since 2001.
• According to a presentation dated 31 October on the Suzlon website, Senvion entered new high-growth markets such as the US, Canada, Australia and Romania.
• And things went downhill
• Interest costs ballooned, trapping Suzlon. The financial crisis that blew up in 2008 and the global slowdown that followed didn’t help. The company failed to repay $209 million of debt on 11 October 2012, after bondholders rejected its request for a four-month extension. The default was the biggest on convertible bonds by an Indian firm. 
• In May 2014, Suzlon restructured its foreign currency convertible bonds (FCCBs) worth $576 million, after nearly one-and-a-half-years of tough negotiations with bondholders. Consequently, it will issue approximately $485 million of bonds and the new restructured bonds will have a maturity period of five years and one day from the date of issue. These
bonds will mature in 2019-20. 
• The company earlier restructured Rs.9,500 crore debt through a corporate debt restructuring exercise. In January 2013, Suzlon’s lenders, a consortium of 19 banks, agreed to enhance working capital facilities to the group by Rs.1,800 crore and announced a 10-year deferred repayment plan.
• Suzlon Energy had four series of FCCBs of $200 million that was due in October 2012, FCCBs of $20.8 million due in October 2012, FCCBs of $90 million due in July 2014 and FCCBs of $175 million due in April 2016. 
• Suzlon Energy chairman Tulsi Tanti on 10 January said the company’s rupee debt stands at Rs.8,000 crore and it will be reducing it by 50% by the end of this fiscal year. It also has an equal amount of debt in foreign currencies.
• The second person quoted above said Suzlon Energy could not proceed with sale or part sale of Senvion in the past as the company had defaulted on various other obligations.
• Looking for a way out
• Selling non-core assets to raise cash is a no-brainer in better times, but not when the going is tough and the capital requirements are huge. Suzlon hoped to take Senvion public, or go for a part-sale. Neither worked out.
• Buyers want good quality and operating assets. For instance, in September, Sajjan Jindal-controlled JSW Energy Ltd said it will buy three operating hydropower projects of Jaiprakash Power Ventures Ltd for a deal close to Rs.10,000 crore. Private equity firms are keen to buying only operating assets in the case of cement, road and power. Lenders are not
happy with selling non-core assets of companies.
• A second person familiar with the development said the company examined various options to lower debt and balance the company’s capital structure.
• “A complete stake sale route made sense to create maximum shareholder value. Also, Indian market and select emerging international markets were offering huge growth potential. But the company was unable to exploit the same owing to high debt on the books and liquidity crunch. The company needs to deleverage itself to safeguard its domestic
business interests, too,” he said.
• The 100% stake sale of Senvion is in line with Suzlon’s strategy to reduce the debt and focus on the home market and high-growth market such as the US and emerging markets such as China, Brazil, South Africa, Turkey and Mexico, Suzlon said in a statement on Thursday. 
• “Suzlon Group is proud to have played a significant role in Senvion’s growth story, making it globally competitive driven by state of the art technology. Over the years, both Suzlon and Senvion have mutually benefited and added value to each other’s growth and development and sharing of best practices,” Tanti said. He said Suzlon will focus on high-
growth markets such as India, the US and other emerging economy markets. 
• Suzlon maintains the sale of Senvion was purely aimed at reducing the debt on its books.
• Not everyone is convinced it’s as simple as that.
• Sell call
• A senior consultant, requesting anonymity, said a clutch of lenders were putting pressure on Suzlon Energy to sell assets to cut debt.
• “Senvion is the only marquee asset with Suzlon Energy that can fetch better valuations. Only good assets will get valuations. With lenders putting pressure on Suzlon Energy to cut down the debt, it had to sell Senvion without waiting for an IPO,” he said.
• The banking industry has seen a build-up of stressed assets, which has pushed banks to become more aggressive in recovering overdue loans. According to the Reserve Bank of India’s (RBI’s) Financial Stability Report, released on 29 December, stressed advances, or the sum of gross non-performing assets (NPAs) and restructured loans, increased to 10.7%
of total advances in September from 10% in March last year.
• A senior retired banker, who is closely tracking Suzlon Energy, said the company is selling its crown jewel, fearing further fall in valuations owing to the fall in oil prices.
• “Suzlon Energy was facing three kinds of issues. Firstly, it was saddled with huge debt that it was trying to bring down by selling non-core assets. Secondly, the valuation of renewable assets or alternate fuels is likely to fall further with crude oil prices declining consistently. Thirdly, Suzlon Energy may not have secured necessary permissions to use cash
reserve of Senvion from German lenders,” he added.
• In the last six months, price of Brent crude, the international yardstock for crude prices, has lost 55.11%, falling from $107.68 to $48.49 a barrel.
• On Tuesday, Reuters reported that key oil producer Iran hinted prices could drop to $25 per barrel without supportive Opec action while oil prices are hovering near six-year lows after a seven-month long selloff on worries of a glut caused primarily by unexpectedly high production of US shale crude. The threat of a further fall in energy prices, and
consequent fall in Senvion’s valuation was real. 
• The sale
• Thursday’s transaction, that took the market by surprise, is expected to be closed before the end of the current fiscal year. The Senvion sale price of €1 billion is a sharp discount to the acquisition price of €1.5 billion.
• “The deal is valued at €1 billion equity value in all-cash transaction and future earn-out of up to an additional €50 million (approximately Rs.360 crore),” Suzlon said in a statement. The transaction is expected to be closed before the end of the current financial year, and is subject to regulatory and other customary closing conditions.
• Senvion will license its off-shore technologies to Suzlon for the Indian market, while Suzlon will give Senvion its S111 - 2.1MW licence for the US market.
• Tanti said the Senvion sale is in line with company’s strategic initiative to strengthen balance sheet, and the proceeds would be used for debt repayment, thereby reducing interest cost and augment business growth.
• Stefan Kowski, managing director at Centerbridge, said Senvion is a company with impressive technology and leading market positions. 
• “The global market environment for renewable energies is promising for a wind turbine manufacturer, particularly for one of the most experienced players in the industry with onshore and offshore capability,” Kowski said.
• Tanti is optimistic, though.
• “The Indian government’s significant thrust on renewable energy offers a conducive policy framework to the sector which Suzlon is best equipped to capitalize. Suzlon will offer its wind and solar hybrid technology solutions to contribute towards achieving country‘s target of ‘sustainable energy for all’. With our market leadership, right technology, proven
project execution capabilities and best in class services, we are best positioned to tap the high growth potential in home market,” the Suzlon chairman said in a statement.
• He added that the company will able to improve the performance after Senvion’s sale as the interest expenses would be reduced and will have better ability to boost volumes. It is time, he said, to focus on Indian and select international markets.
•  
• Centerbridge is a private investment firm with around $25 billion (€22.2 billion) in capital under management.
• Frustratingly Suzlon's enormous debts were increasingly restricting its room for manouvre just as the new Indian government had decided to encourage renewables expansion. But thanks to the cash sale, Suzlon should free itself financially to a sufficient
degree to enable it to participate effectively in its home market.
• It gets €1 billion plus an earnout of €50 million, which may be related to Senvion finally securing the deal to supply 54 of its new 6.2MW turbines to RWE Innogy's 335MW Nordsee One project. A technical hitch with the turbine prompted RWE to re-
tender in April 2014. At around €1.3 million per megawatt, as calculated in an offshore costs study by Prognos and Fichtner, this equates to revenue of around €436 million.
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• Indian wind push
• The outlook for wind in India has certainly taken a turn for the better. The government restored the accelerated depreciation tax benefit in its July budget "to give much-needed relief to wind power developers and to ensure ramp-up of production". A
memorandum of understanding was signed on 1 October by public institutions and major companies to set up a joint venture company to build India's first demonstration offshore wind project off the Gujarat coast.
• Tulsi Tanti, chairman of the Suzlon Group, told the press in October 2014 that the company plans a pilot 300MW offshore project off the coast of Gujarat — which would require around 50 turbines — on a pilot basis. The divestment deal includes
handing a production licence for Senvion's offshore turbine exclusively for the Indian market to Suzlon, which makes it the only Indian company able to offer a tried-and-tested machine for the upcoming first Indian offshore wind project. Senvion has
installed 140 offshore turbines at six projects since 2006.
• Similarly, Centerbridge's acquisition of Senvion, after seven years of Suzlon ownership, may add a "stars and stripes" feel to the German turbine manufacturer to increase its attraction for deployment in the slow-moving US offshore market.
• The National Offshore Wind Energy Grid Interconnection Study (NOWEGIS), funded by the US Department of Energy and released in September 2014, concluded there is potential for integrating at least 54GW of offshore wind into the US grid by 2030.
• Centerbridge may be betting that an American-owned Senvion can play a role from the beginning. The NOWEGIS report said: "Although offshore wind is not presently generating electricity in the United States, approximately 5GW of projects could be
deployed in the next decade". Around 830 turbines or an average 83 per year could be required. One of the 12 key offshore barriers identifed in the study is lack of domestic manufacturing.
• However, the problems surrounding the 468MW Cape Wind project, arguably the country's flagship offshore development, hardly give confidence there is a burgeoning market.
• Whether Senvion will be split into offshore and onshore wind turbine manufacturing divisions within the coming years as its new owner looks to maximise the value of its investment remains to be seen. Assuming the US and Indian offshore markets
firm up within the next six to ten years, they could each provide sufficient potential for a production base. Recent offshore developments in France indicate that around 1.5GW of offshore wind with a value of roughly €2 billion merits setting up an
offshore turbine assembly works.
• Also as part of the divestment deal, Senvion gets a licence from Suzlon for its new flagship low wind speed S111-2.1MW technology solely for the US market, possibly as a quid pro quo for the development costs of Senvion's offshore turbine.
• Questions remain
• However, this is a deal that raises many questions. In terms of the S111 license, Senvion itself denied there was a deal stating that its current range was adequate for the US. When questioned about this, Suzlon said the arrangement was made with itself
and Centerbridge and that "Senvion management would be made aware about [it] later."
• Additionally, there was little word about the manufacturing arrangements. Since 2011, Senvion's 2MW turbine nacelles and hubs have been manufactured at Suzlon's plant at Padubidri. In recent years, there have been extensive efforts to align the two
companies supply chain.
• Aside from the licence deals, the parting of Senvion's and Suzlon's ways sees Senvion mainly focused on Europe, Canada and Australia. while Suzlon will concentrate on its home market but also (puzzlingly in view of the S111-2.1MW licence deal ) the
US, as well as China (where Senvion will wind up its presence in business year 2014/2015 ) and emerging markets Brazil, South Africa, Turkey and Mexico.
• Centerbridge says it will work together with Senvion's management for continued development as a profitable and growing company. To what extent Senvion's cash flow will be required to help pay the all-cash acquisition is not clear. Media reports say
Centerbridge will contribute about €550 million to the total purchase price of €1.05 billion — or roughly ten times Senvion's EBIT in business year 2013/2014.
• Senvion expects to increase revenues to €1.9 billion, plus or minus 10%, in current business year 2014/2015 to 30 March, after €1.806 billion in the previous business year. It also expects to improve on the EBIT of €101.2 million achieved in business
year 2013/2014. After taking account of restructuring effects in that year of €38 million, Senvion's EBIT drops to €63.2 million, according to company accounts.
• Centerbridge invests in business where there is a discount to intrinsic value, it said in an August "private debt fund commitment" document. Its strategy is to obtain control and work actively with management to drive value-creation initiatives, explained
the company portfolio advisers when recommending Pennsylvania Public School Employees Retirement System to invest in Centerbridge's third investment fund in a letter dated July 2014.
• One of Centerbridge's first moves may be to renegotiate Senvion's latest syndicate credit agreement, signed in March 2014, freeing the ring fence that had prevented Suzlon from profitably integrating its subsidiary.
• Amongst the credit agreement arrangements, the banks may cancel the credit line if a domination or profit transfer agreement is set up, if there is failure to comply with certain financial covenants, or in the case of a change of control. Dividend
payments are also currently only possible to a limited extent.
• The March 2014 agreement raised Senvion's credit line to €850 million, and gave more flexibility to facilitate project business. It replaced a 2012 agreement for €750 million. As with the old credit line, the new credit line was secured by Senvion
assigning its registered and pending patents to the lenders. But to provide additional security, the bank consortium also enjoys a blanket assignment of all receivables (outstanding bills) and transfer of ownership of finished and half-finished products
and raw, auxiliary and operating materials, Senvion said.
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• New Delhi: Suzlon Energy, one of the world's largest wind-turbine makers, today announced the sale of its German subsidiary for €1 billion ($1.2 billion) to pare its mounting debt.
• Suzlon said US-based private-equity fund Centerbridge Partners LP had bought Senvion in a deal under which it stands to earn another €50 million depending on certain conditions.
• Proceeds from the sale of Hamburg-based Senvion SE will be used to pare part of the about $2.6 billion debt that was left over from a decade-long expansion and acquisition spree. It hopes to become profitable again in 2016.  
• Suzlon will now focuses on home and high-growth markets, the company said in a statement adding the deal was expected to be completed before the end of March.  
• The company, which suffered India's biggest convertible-bond default in 2012, has restructured local loans, refinanced
international debt and cut the number of people it employs to try to streamline its costs as its business has suffered from
weaker-than-expected demand for turbines.
• Suzlon chairman Tulsi Tanti said the sale was at a "minor loss" but the proceeds from the deal will help reduce borrowings, cut interest burden and free up more capital for projects to help it return to profitability next fiscal.  
• As much as Rs 6,000 crore out of the total sale proceeds of about Rs 7,200 crore will be used to repay part of its Rs 16,500 crore of debt. The balance amount will be used for working capital needs, he said.  
• Suzlon was on a rapid expansion until a few years ago, riding a boom in green-energy investment. But the withdrawal of government subsidies in India and other markets, in addition to the global economic slowdown, knocked the
wind out of its business.
• Its shares reversed initial gains and fell over 7 percent to less than Rs 16 at the close on the BSE. 
• Tanti said it is a "wise" decision to exit the business acquired in 2007 for 1.4 billion euros and constitutes as much 65 percent of the business.  
• "The proceeds will be used for debt repayment thereby reducing interest cost and (augmenting) business growth," he said.
• The company was forced to restructure $1.8 billion of debt after defaulting on a $209 million convertible bond redemption in October 2012.
• At the end of the second quarter of the current fiscal, Pune-based Suzlon had Rs 8,900 crore of local-currency debt and dollar borrowings of $1.27 billion, including working capital loan.  
• "We are pleased to announce this development, which is in line with our strategic initiative to strengthen our balance sheet. The proceeds would be used for debt repayment thereby reducing interest cost and augment business
growth," Tanti said.
• Senvion SE will give Suzlon licence for off-shore technology for the Indian market.
• Suzlon had in 2007, bought a 33.9 percent stake in Senvion, then known as REpower Systems AG, after a bidding war with France's Areva. That deal valued Senvion at €1.2 billion. It bought full control of the firm in 2011.
• He asserted that he is "happy" at the valuation which is "reasonable" given the current market conditions and at par with peers.
• Tanti also sought to clarify on the view that the company, which is under corporate debt restructuring process, has sold the asset at a discount.  
• Pointing to 20 percent deprecation of the rupee against the euro over the past seven years, he said: "net-net it is a very minor loss, there is no loss to the company... There is some misunderstanding that there is a loss while selling
this company, it is not true".
• He said the rupee was trading at 60 to the euro at the time of the deal, whereas now a euro fetches you Rs 72.
• Some analysts say that by selling Senvion, Suzlon loses one of the biggest revenue and profit centres for the group, which posted a loss of Rs 924 crore in FY14 and Rs 528 crore in the September quarter of this fiscal.
• "Sale of Senvion is not affecting our profitability. The biggest advantage is that by this deal, our interest cost is reduced and overall debt is reduced and that will help us focus on growth more," he said, conceding that total balance
sheet will get compressed after the transaction.
• Tanti said Suzlon will save Rs 600 crore in interest cost next fiscal, as against Rs 1,600 crore now, while debt repayment will also free up additional sources of finance.  
• Suzlon, which restructured its debt in January 2012, will pay off Rs 6,000 crore from the proceeds to its 19 lenders led by State Bank of India, Tanti said, adding the remaining Rs 1,200 crore will be deployed for operational purposes
on the working capital front. 
• Additionally, Suzlon is also hopeful of a reduction in up to Rs 3,000 crore of debt from the option of converting FCCBs into equity for investors, he said, adding there is a further component of Rs 4,000 crore in low-interest dollar
debt for which the company does not have to make any principal repayments till FY19-end.
• Post deal, Suzlon will be left with only Rs 3,500 crore in debt which will basically be working capital, he said. Tanti said Suzlon has 2,500 customers with over 15,000 mw of operational capacity, from where it will continue accruing
service revenues.
He said due to financial constraints faced earlier, it is not able to meet expectations of these customers till now, but will now be able to cater to the full demand.
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