Reference no: EM132152534

Q-Cells exemplifies the successes and challenges of global importing and exporting. Founded in Germany in 1999, the company became the largest manufacturer of solar cells worldwide. By 2010, however, it was experiencing losses due, in part, to mistiming some of the entry strategies.

First, it is important to know that Germany is a high-cost manufacturing country compared to China or Southeast Asia. On the other hand, Germany is known for its engineering expertise. Q-Cells gambled that customers would be willing to pay a premium for German-made solar panels. The trouble was that solar cells aren’t that sophisticated or complex to manufacture, and Asian competitors were able to provide reliable products at 30 percent less cost than Q-Cells.

Q-Cells recognized the Asian cost advantage—not only are labour and utility costs lower in Asia, but so are the selling, general, and administrative (SG&A) costs. What’s more, governments like China provide significant tax breaks to attract solar companies to their countries. Therefore, Q-Cells opened a manufacturing plant in Malaysia. Once the Malaysian plant is fully ramped up, the costs to manufacture solar cells there will be 30 percent less than at the Q-Cells plant in Germany.

Then, Q-Cells entered into a joint venture with China-based Lightweight Devise Co. (LDC), in which Q-Cells used LDC silicon wafers to make its solar cells. The two companies also used each other’s respective expertise to market their products in China and Europe. Although the joint venture gave Q-Cells local knowledge of the Chinese market, it also locked Q-Cells into buying wafers from LDC. These wafers were priced higher than those Q-Cells could source on the spot market. As a result, Q-Cells was paying about 20 cents more for its wafers than competitors were paying. Thus, in the short term, the joint venture hurt Q-Cells. However, the company was able to renegotiate the price it would pay for LDC wafers.

To stay cost competitive, Q-Cells has decided to outsource its solar-panel production to contract manufacturer Flextronics International. Q-Cells’ competitors, Sun Power Corp. and BP’s solar unit, also have outsourced production to contract manufacturers. The outsourcing has not only saved manufacturing costs but also brought the products physically closer to the Asian market where the greatest demand is currently. This has reduced the costs of shipping, breakage, and inventory carrying.

Case Exercises:

1. Explain the framework that help an organization to choose a country-entry mode.

2. Do you think Q-Cells could have avoided its current financial troubles? How?

3. Do you see import or export opportunities for entrepreneurs in the solar industry?

4. What advice would you give small entrepreneurs when they try to enter foreign markets?