INTB6217 Northeastern University Challenges to Globalization discussion

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Read Vestas Wind Systems A/S - Exploiting Global R&D Synergies (Case attached)

Use the articles, “Distance still matters”

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and "The Cosmopolitan Corporation"

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to discuss the difficulties that you think Madsen will face in trying to deliver tangible outcomes that will benefit Vestas as a whole.

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S w VESTAS WIND SYSTEMS A/S — EXPLOITING GLOBAL R&D SYNERGIES Professor Torben Pedersen and Research Assistant Marcus Møller Larsen wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2009, Ivey Management Services Version: (A) 2009-11-26 Much had happened since the chief executive officer (CEO) of Vestas Wind Systems A/S, Ditlev Engel, broadcast the company’s new corporate strategy — The Will to Win 2005-2008 — from headquarters in Randers, Denmark, to all Vestas employees worldwide in 2005. Vestas was the market-leading producer of high-tech wind turbines. A merger the year before with a Danish turbine producer had experienced financial difficulties, and management was replaced with fresh leadership in order to bring the Danish company to new heights. With the new management came a radical reorganization and the announcement of several new strategic initiatives. As Engel stated, “These initiatives are aimed at increasing effectiveness in all areas of Vestas’s business. We will professionalize our dialogue with the customers, we will improve the quality of our products and we will be much more effective in all that we do.” The charismatic CEO also argued that “by the implementation of The Will to Win, we create a new global Vestas. This work will, no doubt, be exciting and very hard. At the same time, it will require the will to change in all of us and I am confident that we at Vestas can meet this challenge.”1 Among the initiatives was the establishment of the Vestas Technology R&D business unit, headed by Finn Strøm Madsen. Inexperienced in the field of wind energy, Madsen was determined to achieve global leadership in all core technology areas and, consequently, strengthen a core competence for the company. By 2008, Madsen had succeeded in setting up a global R&D network with R&D centres in Denmark, the United Kingdom, Singapore and India, and in early 2009, a centre was opened in the United States. Vestas Technology R&D accounted for €228 million in expenditures (3.7 per cent of the consolidated revenue) in 2008, which was 79.5 per cent higher than in 2007. That same year, Vestas announced a new corporate strategy known as the No. 1 in Modern Energy strategy. With this strategy, the company — as market leader — committed itself to promoting the wind industry as a whole and to putting wind energy on par with oil and gas. In addition, the strategy highlighted Vestas as a high-tech company and put a greater emphasis on its technological innovations. 1 Vestas’s website, press section, accessed October 28, 2009. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. 9B09M079 9B09M079 Despite impressive growth in recent years — the amount of energy delivered by Vestas had increased by 75 per cent since 2005 and its revenue had grown by 68 per cent — Madsen faced a dilemma. The number of employees in Technology R&D was at a record high, the R&D network already encompassed five development facilities around the world, and further expansion was planned. On top of that, the network had extensive links to external research centres and universities. The task of coordinating and, consequently, capitalizing on the R&D network was growing more complex and complicated as the network expanded. Identifying novel, profitable competences and innovations around the world, managing the interfaces between different research units and resources, and exploiting synergies were challenges Madsen faced. Even though Vestas had shown positive growth, competition from different types of companies was growing considerably due to the attractiveness of the wind energy industry. Madsen knew he had the full support of Engel, who had stated: “Investments in research and development demand some financial resources, but we truly believe that the right framework also gives many rich opportunities.”2 However, Madsen also knew that he would eventually have to present some tangible results arising from the extensive R&D efforts that were launched under his leadership. He therefore had mixed feelings as he prepared himself for the weekly Vestas Government meeting, where Vestas’s management shared and discussed business information and progress. INTRODUCING VESTAS WIND SYSTEMS A/S Vestas Wind Systems A/S was a global, market-leading producer of high technology wind power solutions. Its headquarters were located on the east coast of Jutland — the Danish mainland. By the end of 2008, the company had delivered 5,580 megawatts of electricity through its wind turbines, which were installed around the world. It held 23 per cent of the wind energy market and employed approximately 21,000 workers all around the world. In 2008, the company had €6,035 million in revenues and gross profits of €1,179 million (see Exhibits 1 and 2). The company was founded in 1945 as Vestjysk Staal Teknik A/S (abbreviated to Vestas) by Peder Hansen, the son of a successful blacksmith in western Jutland. During its first 30 years, the company’s activities focused on a broad line of household appliances and agricultural products. However, in 1979, during the turmoil of the second oil crisis, Vestas manufactured and delivered its first wind turbines to customers who were increasingly demanding sustainable energy. Vestas has since grown to become a globally successful wind energy company, with its core businesses centred on the development, manufacturing, sale, marketing and maintenance of wind power systems that use wind to produce electricity. The name of the company was changed to Vestas Wind Systems A/S in 1986, a change that marked the company’s exclusive focus on wind power solutions. In 2005, Ditlev Engel, then the newly appointed CEO and president of Vestas, announced the launch of a new corporate strategy — The Will to Win 2005-2008 — which would eventually transform the company from a mere Danish producer of wind power turbines into a global energy and technology corporation. Engel described his view of the strategy, stating: “The initiatives presented today aim to ensure that Vestas will still be the world’s leading manufacturer of wind power systems in three years time — both in terms of technology and the market…. We must be prepared for the fact that the future customers for our wind power systems are international energy companies. They have high demands for us and for our products. Many people still regard wind power, and thereby Vestas, as a ‘romantic flirt’ with alternative energy sources. It is not. Vestas and wind power are real, very competitive alternatives to oil and gas.”3 Even 2 3 Børsen, January 22, 2008. Vestas’s website, press section, accessed October 28, 2009. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Page 2 Page 3 9B09M079 In conjunction with the new strategy, the company presented a new vision of “Wind, oil and gas” and revised its mission to “Failure is not an option.” The former was formulated to underpin wind as a source of power at least as important as fossil fuels. The latter emphasized the company’s commitment to continually optimize working processes, safety procedures and products. In addition, Vestas was proud to possess an extensive portfolio of wind turbines based on more than 25 years of experience, insight and knowledge of wind, ranging from the V52 turbine with a capacity of 850 kilowatts to the V90 with a capacity of three megawatts (see Exhibits 3 and 4). On average, Vestas installed a new wind turbine every three hours. Since 1979, the company had delivered approximately 38,000 turbines. No. 1 in Modern Energy Following significant success with the Will to Win strategy, Vestas commenced on a new corporate strategy, namely the No. 1 in Modern Energy strategy, in 2008. While the focus of the Will to Win strategy was internal improvements, the new strategy emphasized external positioning and Vestas’s commitment as market leader to promoting the industry as a whole and to putting wind energy on par with oil and gas. Vestas aimed to create the world’s strongest energy brand. To achieve that goal, the company focused on consolidating its market leadership position in the high-growth wind energy industry, which was becoming increasingly competitive. “Vestas will be one of the world’s top five energy brands,” marketing director Tina Ebler argued with regard to the new strategy, “and wind will not be characterized as alternative energy anymore. Politicians and decision makers should understand that wind works.”4 Also integral to the new strategy were the financial goals set for 2009, which reflected the company’s ambition to be profitable while remaining No. 1 in Modern Energy. The goals included an EBIT margin of 11 to 13 per cent, net working capital of a maximum of 10 per cent of annual revenue, and revenue of €7,200 million. Vestas’s structure consisted of the Executive Management and 14 separate business units focused on sales, production or development. While the former consisted of Ditlev Engel and Henrik Nørremark, executive vice-president and chief financial officer (CFO), each of the latter was represented by a separate unit president. Corporate Functions was also a unit in the company structure, and dealt with aspects such as contracts, forecasts, planning, IT, finance and operations (see Exhibit 5). The company introduced a core concept coined “Vestas Government,” under which Executive Management and the presidents of the 14 business units — the “Ministries” — met on a weekly basis to share and discuss key business information and to monitor the implementation of the company’s strategy. Accordingly, a Vestas Constitution was formulated with the purpose of converting visionary thoughts into concrete action. “Constitution is a very basic term. It is something people understand,” Engel explained. “In the same way [as with a national constitution], it makes it clear that all of our business methods and systems, all of the laws that surround us on a daily basis, derive from some very fundamental attitudes.”5 4 5 Børsen, April 16, 2008. Berlingske Nyhedsmagasin, March 30, 2007. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. though Vestas was already the world’s largest player in the wind energy market, the new strategy explicated the company’s global aspirations and professionalized the organization in accordance with a global mindset. The alteration in management and strategy came one year after the company merged with another Danish wind turbine maker, NEG Micon. The merger made Vestas the global leader in the wind energy market, but the marriage also entailed some financial troubles, which eventually prompted the changes. Page 4 9B09M079 Vestas’s most important markets were in Europe, constituting 60 per cent of revenue in 2008, followed by the Americas and Asia/Pacific, accounting for 26 per cent and 14 per cent, respectively. However, despite the significance of the European markets, the company was well aware of industry analysts’ forecasts that although Europe remained the absolute leading market for wind energy — representing 61 per cent, or 57,000 megawatts, of accumulated installed capacity in 2007 — the North American and Asian markets (particularly the United States, China and India) were growing rapidly. Analysts expected these markets to replace Europe in market importance in just a few years. It was therefore no surprise when Vestas announced the establishment of R&D centres close to these markets (Singapore, Chennai and Houston). Much of the industry’s growth potential was facilitated by the exceedingly supportive political and social climate. Not only had the anti-nuclear power campaign sparked a general interest in the industry, but favorable political resolutions and targets had also contributed to the remarkably optimistic forecasts. Among the latter was the E.U. resolution that 20 per cent of all energy consumption must come from renewable sources by 2020. Also, China set its renewable energy target at 15 per cent, while the newly elected U.S. president publicly announced his intentions of creating a green economy. A result of these developments was that Vestas found itself facing growing competition. Vestas was the largest producer of wind energy at the end of 2007 in terms of market share, but the large conglomerates of Siemens and GE Wind were using their strong financial bases to invest heavily in wind energy to capture future market shares and were therefore considered to be serious challengers. In addition, a number of listed companies (Suzlon, Gamesa, Nordex and Repower) and family-owned businesses (Enercon Gmbh) represented strong rivalries for Vestas (see Exhibit 6). Lastly, there was an increasing number of low-cost Chinese providers entering the wind energy scene, which were seen as posing a considerable threat to Vestas’s market-leading position. In fact, Per Krogsgaard, the director of BTM Consult, a Danish consultancy company specialized in renewable energy, stated that “the Chinese market is booming at the moment, and you should not be surprised if Chinese producers like Goldwind become the world’s largest in a short period due to the large sales on the Chinese market.”6 Peter Kruse, Vestas’s director for Communication and Investor Relations, was, however, not overly concerned: “We are in a far more mature market today, and the large customers in the energy sector always consider how long the different producers have been in the market — they want to be fully reassured that the producer is safe before they place large orders.”7 A GLOBAL R&D NETWORK “For us, research and development is a global activity,” explained Finn Strøm Madsen, president of Vestas Technology R&D. “It is through technology that we need to differentiate ourselves. Our goal is to have a borderless, global setup with hubs in Europe, Asia and North America. Via this network, we are aiming for an ongoing flow of ideas and technology for developing the best products and services.”8 Vestas Technology R&D was established in 2005 in conjunction with the reorganization of the company under the vision “Global leadership in all core technology areas,” and had roughly 1,300 employees of 18 different nationalities scattered around the world in 2008. The formation of the business unit was a manifestation of the company’s focus on technology, as well as a means of accessing technological 6 Børsen, March 31, 2008. Ibid. 8 Vestas Magazine Win(d), February 2008. 7 Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Markets and Competitors 9B09M079 hotspots around the world and fostering a global search for talent. With the new establishment came the unification, professionalization and globalization of Vestas’s R&D, which had previously been implicitly and tacitly carried out to a large extent. This change was evident in such aspects as R&D responsibility, which was now centralized in Technology R&D, and the introduction of technical risk management as a central concept. Prior to the Will to Win strategy, Vestas’s research and development was characterized by decentralized R&D responsibility, the mixed use of new products and unproven technologies, and limited risk management (see Exhibit 7). In addition, until the network was centrally organized, each R&D activity was undertaken by individual engineering branches, such as Mechanical, Blades, Electrical and Plant IT. As time passed, it became apparent that this silo structure was exceedingly time consuming, as the process of creating compatible components required intense dialogue with the other branches. Such a process was, consequently, highly resource-demanding. In 2008, Vestas used €228 million on research and development, compared to €127 million in 2007. Technology R&D consisted of three sub-units: Global Research (“Develop breakthrough innovation”), Engineering and Products (“Deliver products to production”), and Operations (“Enhance service business”) (see Exhibit 8). The objectives of the business unit were accordingly three-fold: to secure effective product development in Engineering and Products, to strengthen Global Research project execution and innovation, and to leverage synergies in the supply chain. Four cornerstones of supporting the R&D activities were identified: the creation of a global network (considered the most significant), research programs with internal and external partners and top universities around the world, a strategic focus on intellectual property rights, and new ventures and acquisitions. “Global Research must contribute to driving down the cost of energy by maturing new technologies to create breakthroughs that can be deployed into products,” Jan Kristiansen, senior vice-president of Global Research, commented. “We must be a network-based organization, both because of our own globalization but also because a global presence is essential to gaining access to key competences.”9 Vestas’s Technology R&D consisted of many pieces of knowledge and could not, therefore, rely solely on one location. Instead, it had to tap into knowledge from a global network of R&D centres. Development Facilities Inaugurated in 2008, Vestas Technology R&D’s head office in Aarhus, Denmark, was the industry’s largest, most modern R&D centre. As stated in Vestas’s annual report, “the centre unites a number of test and development facilities in a unique innovation environment, which produces optimum conditions for integrated product development and cross-disciplinary collaboration with customers and suppliers. Following an extension of the facilities, the centre will house more than 900 people in 2010.” With a large, symbolic wing crossing through the triangular infrastructure, the flagship centre carried out research and development across the entire value chain, and possessed excellence status in most of the functional competences for research. “That a Danish company has, in relatively few years, taken a global role as the world’s undefeated market leader is, in itself, an achievement,” Ditlev Engel said in relation to the new development facility in Aarhus. “…but we cannot allow ourselves to rest on our laurels — the competition is extremely tough. Therefore, it is essential for us to remember that our leading position is not all about the number of wind turbines we sell and install. It is equally about the technological development.”10 In contrast, the R&D centre on the Isle of Wight in the United Kingdom — a sailing Mecca and marine centre — was originally a production site for Vestas blades. A separate, highly specialized R&D centre was not established at this location until the autumn of 2008. The Isle of Wight location housed a world9 Vestas Magazine Win(d), November 2008. Børsen, January 22, 2008. 10 Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Page 5 Page 6 9B09M079 In Singapore, three key aspects justified Vestas’s presence. First, the country was intensely focused on its energy supply, which, when combined with its strong economy, created a particularly conducive environment for Vestas’s research and development profile. Second, the number of highly qualified engineers in Singapore was favorable. Third, the R&D presence in Singapore created a gateway into the increasingly important Chinese market. As the intellectual property rights regulations in China were still too ambiguous and risky for conducting research and development, Vestas relied on Singapore as a regional hub for this task. However, Madsen recognized the longer-term need to establish an R&D centre in China in order to gain access to one of the fastest-growing markets in the world. The office in Chennai, India, was established in late 2007 as an R&D back office due to the high local concentration of mechanical and IT engineers. Since its establishment, the competences and talents identified in India proved strong, and the office proved its worthiness as a regional technology centre. Higher levels of responsibility were therefore transferred from the global headquarters in Denmark to Chennai (see Exhibit 9). For instance, product support R&D for the V82 wind turbine, which was produced only in India, was assigned exclusively to Chennai. Moreover, while aeromechanical structural design and analysis were among the major competences identified, the centre was also expected to demonstrate competences in composites, advanced loads modeling, and gear and drive trains, as well as in power electronics and power control. Accordingly, the number of employees in India, which was 125 in 2008, was expected to reach 600 in 2012. The latest addition to the network was the R&D centre in Houston, Texas, established in early 2009. Regarded as the energy capital of the world and seen as the centre of a massive amount of energy knowledge, Houston was pivotal to Vestas’s establishment of a regional platform in the area. The company also expected the Houston R&D centre to create closeness to one of the most prominent markets in the world. “Houston provides access to a highly qualified workforce in an international and extremely energyfocused research and development environment,” said Madsen. “In addition, Houston will allow Vestas to establish and strengthen relations within the North American and global energy industry. Tapping into and contributing to the tremendous pool of knowledge and know-how offered by Houston’s energy environment is invaluable in our quest to develop wind turbines that also in the future can meet the technological and cost-efficiency demands of our customers.”11 The company intended the U.S. centre to provide aeromechanical, electrical and power plant competences. Managing the Organizational Dynamics The idea behind the global R&D network was to create a network-driven set of complementary competences, each identified at a different technological hotspot, which would fit into one integrated product. In this respect, a Global Operation Model was designed as a stage-gate model in which 14 competences were categorized into four groups — aeromechanical, electrical, control and system architect, and power plant. They were then plotted in a matrix together with the capabilities of the five R&D centres. This meant that, for instance, Vestas’s R&D centre in Singapore did not design wind turbines only for Singapore, but for the whole world. The set of competences identified in Singapore was therefore 11 Windfair, February 2, 2008. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. class expertise centred on design materials and aerodynamics, and it was therefore an obvious place for Vestas to pursue competences. More specifically, the Isle of Wight R&D facility was considered to be a Centre of Excellence with respect to aeromechanical composites, and it was seen as a competence centre for aeromechanical structural design and analysis. It employed approximately 60 mechanical engineers in 2008. Page 7 9B09M079 Another essential facet of the Global Operation Model was the emphasis on the respective centres’ constant development of competences. As the business unit aimed to develop the best products and services, internal learning and development were vital. The Global Operation Model divided the respective centres into “competence centres” and “Centres of Excellence” according to the level of research undertaken in each competence. Vestas naturally aimed to elevate as many research areas into Centres of Excellence as possible. This process could, for instance, be seen in the Chennai centre, where it was originally expected that the lower ends of the R&D value chain (e.g. mechanical and IT-related R&D) would become a stronghold. As the centre gradually contributed more and more to the overall learning process in Technology R&D, it gained responsibility and earned a higher status. Therefore, the original intention of accessing talent for an R&D back office grew into a vision of an R&D Centre of Excellence where the responsibilities increasingly covered the higher ends of the value chain. According to Madsen, having a dynamic, developing environment within the network was also essential to securing the critical mass required for developing the business unit. “We’re devoted to acquiring the best employees — and the best employees are in a constant search for a professional environment,” Madsen argued. “We need to ensure that we give them this environment, that they have constant challenges, and that they draw on each others’ competences — simply put, that we have critical mass.”12 Optimizing the interfaces between the R&D centres in the network was another central focus for the Technology R&D unit. Vestas devoted many of its resources to establishing tools, procedures, training and education to achieve this goal. When, for instance, Technology R&D ran a project across the network, the individual processes were determined in advance so that each site was comfortable with what to do and what to deliver. Furthermore, as each site completed its part of the project, the product or service could be gathered centrally. Vestas had also invested in a video conference system that allowed employees from different regional hubs to have real-time, face-to-face meetings and conferences. “It is actually a virtual meeting room where you have six chairs on one side and three large screens on the other side with two chairs each,” explained Michael Høgedal, vice-president and MD in Technology R&D Chennai, India. “When you are calling a similar office, it looks like you are attending a physical meeting with faces and sounds from the right places.”13 In addition, Vestas’s focus on one particular product, in contrast to competitors such as General Electric or Siemens, gave the company the possibility of coordinating the widespread set of R&D centres and competences. Collaborations with external research institutions and universities, i.e., open innovation, were also seen as important for Vestas Technology R&D’s strategy, as it was too costly and complex for Vestas to pursue leadership in all areas on its own (see Exhibit 11). In 2008, Vestas initiated a Global University Program through which a large number of professors, PhD students, and master’s students from leading universities received sponsorships. The partners were generally selected from a geographical perspective in relation to Vestas’s R&D centres around the world. For instance, in Chennai collaborations with Centre for Wind Energy Technology (C-WET) and the Indian Institute of Technology in Madras (IIT-Madras) were established. According to Madsen, “. . . Increased cooperation with universities is a natural consequence of our growth. We are highly interested in working closely with leading researchers worldwide in order to ensure that we maintain our position as the leading supplier of wind energy solutions and to reinforce the 12 13 Interview with Finn Strøm Madsen, January 2009. Interview with Michael Høgedal, December 2008. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. compared with the competences identified in the other R&D centres in the Global Operation Model, which ensured optimal collaboration. This was also evident in relation to the business unit’s separate, disaggregated R&D value chain, which covered seven activities from the initial ideas in the “Blue Sky” to the final stages of development of the “Product” and “Product support,” with the respective R&D centres simultaneously engaged in multiple activities (see Exhibit 10). Page 8 9B09M079 EPILOGUE Pondering over how he would approach the Vestas Government, Finn Strøm Madsen knew that, on the one hand, the establishment of Vestas Technology R&D as a separate function gave Vestas a unique opportunity to create sustainable competitive advantages. In that respect, he was comfortable with the stated goals for the business unit under his domain. On the other hand, the increasingly complex, resourcedemanding task of coordinating an R&D network encompassing internal and external units — and eventually capitalizing on it — concerned Madsen. Indeed, it was not a secret that Vestas emphasized its R&D efforts to meet the escalating competition in the wind energy market, particularly the competition arising from Siemens and GE Wind. These companies had a completely different point of departure from which to undertake their businesses due to their remarkably strong resources and financial situations. If Technology R&D wanted to pursue its vision of “Global leadership in all core technology areas,” it was undeniably forced to chase and tap into knowledge and know-how on a global basis. In the end, Madsen and his business unit had to undertake a balancing act between the synergies deriving from the global R&D network and the costs associated with it. Therefore, the remaining members of the Vestas Government looked forward to hearing how Madsen would handle the complex progress and structures of Vestas Technology R&D, and how he would take the business unit forward to deliver tangible outcomes that would benefit Vestas Wind Systems A/S as a whole. 14 Vestas’s website, press section, accessed October 28, 2009. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. recruitment of the brightest students from these universities.”14 Accelerating Vestas’s innovative wind power research through collaborations and partnerships provided the company with access to the most recent knowledge and the most qualified human resources, which would serve as a competitive advantage in a highly attractive market in which the rivalry for market share and profit was growing increasingly fierce. What was perhaps regarded as a network of five R&D centres was, in fact, a complex, extensive arrangement of Vestas’s own R&D facilities and external research centres and universities. Page 9 9B09M079 Exhibit 1 mEUR 2008 2007 2006 2005 2004 HIGHLIGHTS Income statement Revenue R&D expenditures Gross profit EBITDA EBIT Profit of financial items Profit before tax Profit for the year 6,035 228 1,179 803 668 46 714 511 4,861 127 852 579 443 0 443 291 3,854 125 461 328 201 -40 161 111 3,583 2,363 97 67 84 120 9 64 -116 -49 -42 -41 -158 -89 -192 -61 Balance sheet Balance sheet total Equity Provisions Average interest-bearing position (net) Net working capital Investment in property, plant and equipment 5,308 1,955 274 395 299 509 4,296 1,516 305 179 -68 265 3,654 1,262 265 -299 122 153 3,085 2,881 962 1,162 239 181 -560 -625 498 686 95 89 277 -680 -91 701 -317 -54 598 -144 -101 148 -137 -46 -30 -201 458 -494 330 353 -35 227 Cash flow statement Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Change in cash at bank and in hand less current portion of bank debt Employees Average number of employees Number of employees at the end of the year RATIO Financial ratios Gross margin (%) EBITDA margin (%) EBIT margin (%) ROIC (%) Solvency ratio (%) Return on equity (%) Gearing (%) Source: Vestas Annual Report 2008. 17,924 13,82 11,334 10,3 9,449 20,829 15,305 12,309 10,618 9,594 19.5 13.3 11.1 34.1 36.8 29.4 6.3 17.0 11.9 9.1 30.9 35.3 21.0 9.9 12.0 8.5 5.2 11.9 34.5 10.0 13.8 2.4 0.3 -3.2 -13.2 31.2 -18.1 51.2 5.1 5.0 -2.1 -3.8 40.3 -6.9 50.1 Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. FINANCIAL FIGURES Page 10 9B09M079 Exhibit 2 2008 2007 2006 2005 2004 534 0 534 0 525 1 472 0 319 2 5,580 4,502 4,239 3,185 2,784 187,478 129,207 458,296 172,800 167,311 479,958 103,066 170,505 111,541 372,037 139,983 138,035 554,516 14,809 164,413 93,983 330,106 124,841 124,841 343,084 14,954 Waste disposal Volume of waste (tons) - of which collected for recycle (tons) 96,632 30,254 89,643 28,422 82,739 27,593 67,313 17,266 16,407 9,279 Emissions Emission of CO2 (tonnes) 41,832 32,798 28,693 17,266 9,279 16 5 15 5 7 6 4 5 5 1 KEY FIGURES Occupational health & safety Industrial injuries (number) - of which fatal injuries (number) Products MW delivered Utilization of resources Consumption of metals (tons) Consumption of other raw materials, etc. (tons) Consumption of energy (MWh) - of which renewable energy (MWh) - of which renewable electricity (MWh) Consumption of water (m3) - of which water of non-drinking quality (m3) Local community Environmental accidents (number) Breaches of internal inspection conditions (number) Source: Vestas Annual Report 2008. 143,170 90,732 82,592 20,080 227,907 121,212 118,603 35,805 118,603 35,805 226,410 96,911 0 0 Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. NON-FINANCIAL FIGURES Source: www.vestas.com. Page 11 Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. WIND TURBINE FAMILY Exhibit 3 9B09M079 Source: www.vestas.com. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Page 12 9B09M079 Exhibit 4 THE WIND TURBINE Page 13 9B09M079 Exhibit 5 COMPANY STRUCTURE15 Vestas Americas A/S Henrik Nørremark, President Corporate Functions Vestas Asia Pacific A/S Denis Koh, President Vestas People and Culture Roald S. Jakobsen, President Vestas Central Europe A/S Hans Jørn Rieks, President Vestas Technology R&D Finn Strøm Madsen, President Vestas China A/S Lars A. Andersen, President Vestas Blades A/S Ole Borup Jakobsen, President Vestas Mediterranean A/S Juan Araluce, President Vestas Control Systems A/S Bjarne Ravn, President Vestas Northern Europe A/S Klaus S. Mortensen, President Vestas Nacelles A/S Søren Husted, President Vestas Offshore A/S Anders Søe-Jensen, President Vestas Spare Parts A/S Phil Jones, President Vestas Towers A/S Knud Bjarne Hansen, President Source: www.vestas.com. 15 Corporate functions included Contract Review, Forecasting and Planning, Group Communication, Group Finance & Operations, Group Government Relations, Group Marketing and Customer Insight, Group IT, Treasury, and Vestas Excellence. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Vestas Wind Systems A/S Ditlev Engel, President and CEO Page 14 9B09M079 Exhibit 6 Source: BTM Consult press release, “International Wind Energy Development — World Market Update 2007,” March 27, 2008. Exhibit 7 VESTAS’S R&D BEFORE AND AFTER THE WILL TO WIN • • • • • • • • • Before Responsibility decentralized Mostly prototypes Limited test and verification Mix new products and unproven technology Limited use of project model stage gate No centralized overview of Wind Turbine Generators (WTG) under warranty Lack of process overview Premature launch of products Limited risk management Source: Authors’ assessment. • • • • • • • • After Responsibility centralized in Technology R&D Test, verification and prototypes Only use of proven technology Disciplined use of project model Database providing global overview Systematic Continuous Improvement Management (CIM) process Controlled release of products Technical risk management Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. COMPETITORS’ MARKET SHARE, 2007 Loads & Control Aerodynamics, Mat. & Mec. Source: www.vestas.com. Turbine Software Blades Power Plant Engineering & Products Project Management Engineering Plant IT LAC/Sys. Archi. Research Centers Operations Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Mechanical Technology R&D President CFO Product Support VESTAS TECHNOLOGY R&D STRUCTURE Electrical Global Research Electrical Drivers & Ctrl. Exhibit 8 Implementation Page 15 Performance & Diagnostics Special Tools 9B09M079 Page 16 9B09M079 Exhibit 9 Vestas Technology R&D’s center in Chennai, India, proclaimed itself as “a regional research centre leveraging all activities in Technology R&D by drawing on the competences readily available in India and here recruiting outstanding engineers for attractive global R&D positions providing challenging jobs, attractive training and career opportunities at an international scale in the most exciting technology company within the business.” Headed by Michael Høgedal, the R&D center should balance global needs in Technology R&D and leverage the entire organization by: 1) offering attractive positions across Technology R&D, 2) recruiting talented and experienced Indian engineers, and 3) boosting efficiency and innovation in Technology R&D’s value chain. However, what had grown to become an R&D Center of Excellence in Vestas’s global R&D network was purposely established in August 2007 as an R&D back office. It originally attracted engineers who primarily should supplement the existing functions in Vestas’s development department (i.e. no specialized technical focus), such as IT and R&D documentation. Yet, after Michael Høgedal presented the prospects of the newly established Indian division to the existing organization in Denmark in order to map out potential areas of supplementation, full management teams were sent to Chennai to interview the candidates. As a result, it was decided that, given the identified qualifications, independent specialist teams in aeromechanical structural design and analysis, composites, advanced loads modeling, and gear and drive trains should be created, and that the level of responsibilities should be expanded towards higher levels of the R&D value chain (see Exhibit 11). By 2008, the Chennai center had 11 R&D departments with respective managers or team leaders in different areas of the general Technology R&D structure. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. VESTAS TECHNOLOGY R&D, CHENNAI, INDIA Page 17 9B09M079 Exhibit 10 VESTAS TECHNOLOGY R&D VALUE CHAIN Blue Sky Basic research Applied research Technologies Components Product support Products Technology R&D Singapore Technology R&D Chennai Technology R&D Houston Source: www.vestas.com. Exhibit 11 VESTAS KEY PARTNERS The United States Europe Asia Boeing Riso Tsingua UoWisconsin Semcon Caran IIT Chennai Texas A&M Bristol NTU MIT AMRC NUS DTU A* Aalborg Source: www.vestas.com. Authorized for use only by Kanwal Sakhi in INTB 6217 at Northeastern University from Feb 11, 2019 to Mar 29, 2019. Use outside these parameters is a copyright violation. Technology R&D Global
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Running head: CHALLENGES TO GLOBALIZATION

Challenges to Globalization
Institutional Affiliation
Date

1

CHALLENGES TO GLOBALIZATION

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Vestas Wind Systems A/S is a Danish company that specializes in the manufacture,
installation, and servicing of wind turbines. The company was founded in 1945 and has since
expanded its operations globally; it has opened manufacturing plants in the United States, India,
Sweden, Spain, Romania, China and other parts of Europe. The company's headquarters is
located in Randers, Denmark from where all its global operations are coordinated from; by 2005
Vestas Wind Turbines had established itself as one of the leading producers of high-tech wind
turbines in the world. These achievements although came at a cost, the company by this time
sought to form a merger with another Danish turbine producer, this expansion brought with it
significant changes to the company that were thought to cause detrimental impacts to the growth
of the company (Pedersen, 2009).
Among the changes that came with this expansion that was dubbed "The Will to Win
2005-2008" included the creation of a Vestas Technology R&D business un...


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