Strategic Group Mapping
According to Michael Porter whom developed the concept of a “strategic group” it is used in strategic management in order to group companies within an industry which share similar business models or combinations of strategies. The concept’s main focus is to aid in identifying direct competitors and how they directly compete with the firm. Strategic mapping can also be used to identify opportunities. In 2006, China’s government enacted a renewable energy law with a goal of directly supporting the growth of clean energy companies (Bradsher 2010). Companies that fall within the strategic group along with NRG Energy includes Camco International, Canadian Solar, Inc. ...view middle of the document...
Also in China, the Shanghai Power Transmission and Distribution Joint Stock Company entered into a joint venture agreement with Canada’s Xantrex Technology, Inc, to build a factory to design, manufacture and sell solar and wind power electric and gas electronics products (Bradsher 2010).
Renewable energy technologies have an extremely high potential in China and that potential can be realized at a reasonable cost. Market research has proven that a reasonable number of consumers will acquire renewable power although the costs are somewhat higher than conventional power (Farhar 1996). However, economic concerns and even experience suggest significant market barriers and market failures that will hinder the development of the renewable energy industry in China and globally. There are four main barriers to the renewable industry in China which are (1) commercialization barriers caused by innovation to an old technology, (2) price differences resulting from established subsidies as well as unequal tax charges between renewable energy and other energy sources, (3) the limiting of the market compared to the value the population will benefit from renewable energy, and (4) market barriers such as miscommunication, lack of resources for consumers, and high transaction costs for making small purchases (Harrison 2009).
As far as commercialization barriers, there are two major barriers that would affect NRG Energy in China. First there is an issue of undeveloped infrastructure. In order to develop renewable energy resources, the company will require large initial investments to construct the proper infrastructure (Harrison 2009). Of course, these investments will increase the cost of providing renewable electricity to consumers, especially during early years in China. The second major barrier within commercialization barriers would be a lack of economies of scale. According to Merriam-Webster Dictionary, economies of scale are defined as the increase in efficiency of production as the number of goods being produced increases. While in the manufacturing stage, most renewable energy technologies are developed on assembly lines, where mass production can highly reduce costs (Jacobsson 2000). Also, economies of scale are certain to lead to cost reductions for wind, fuel cell, and biomass technologies (Porter 1996). Unfortunately since renewable fuel is such a relatively new industry to not only China but the world, as long as demand requires relatively few units to be produced, prices will remain high. This cause and effect situation will lead to low demand, and therefore low production volumes (Jacobsson 2000).
NRG Energy will face a major barrier in China considering the unequal government subsidies and taxes compared with nuclear and fossil fuel technologies, which already occupy a relatively high advantage in government funds for research and development (Porter 1996). According to a study conducted by the Energy Information...