Tulsi R. Tanti, Suzlon Wind Energy
Release Date: 2009-05-18
Successful new companies should be born smart, what was so smart about Suzlon when you created the company 15 years ago?The point is that somebody has to think differently. First you have to think differently, then you act and become smart. My belief is that it is best to avoid developed commercial industries with strong competition. We started in the textile industry, but I realised that there were too many established players, so we should go a different way. We looked to the future, and the requirements of future business. Because of the energy crisis in India, we were continuously struggling with the availability of energy in the textile industry, and we began to look at ways to secure our energy supply. By doing this assessment, I found that wind energy was the best solution for our textile business. We established two wind turbines, completed studies, and realised that this was the future. Establishing these wind turbines required very large capital investment, but it offers very good stability because wind is not reliant on fuel, and the wind is freely available. Using the competitive edge of the absence of fuel cost, we made our business more sustainable.
Then I realised that we could expand this, not just to our business, but the whole textile industry, the whole state, even the whole world. Fourteen years later, we are developing wind turbines in more than 21 countries; we are contributing green energy and continuously feeding this into the grid. The world needs renewable energy, because we are struggling with the climate crisis, and this is changing the landscape of the sector. It makes no sense to keep using coal, oil and gas. These resources cannot be replaced, but additional energy requirements for global economic development would be met by renewables. We can say we are truly catalysts to projecting the wind industry differently in the world market. When we began in 1995, no one recognised the potential of the wind industry, but when we introduced our company to the capital market in 2005, we had transformed the industry and our stock was sixty times oversubscribed. We have sent the message to the global economy that this is the future of the energy sector. We marketed ourselves correctly, and now today, within 3-4 years, people are realising that the wind industry is contributing heavily to sustainable economies.
Over those fourteen years, you made a huge contribution to the development of the Indian wind industry, which was more or less non-existent before. What were the main arguments you used to overcome the scepticism that you must have encountered in India when promoting wind power?
When we started in 1995, the size of the Indian market was 50MW per year: it was tiny. The banks and financial institutes were unwilling to finance such projects, and the government was not interested in investing because they felt it was high capital intensive and not economically viable. We understood very well how to work around this. We changed the business model, provided end to end solutions, built the interest, developed country-specific plans, convinced governments and bankers and in the first year completed a project of 3.5MW: ten small 350KW machines. We demonstrated that it worked and have developed continuously from there. Today the Indian market represents 1800MW per year, making it world’s third largest market in terms of new installed capacity in 2008, after the US with 8358MW and the Chinese with 6300MW, and before Germany coming in behind with 1665MW. We have expanded the market. It was a huge challenge to initially convince the stakeholders, but now the Indian market is more stabilised and people understand the importance of wind power. Most of our business is done with individual customers in India, because people are building wind power there. The Indian utilities are not investing in wind power projects, unlike other parts of the world. The Indian policy framework created a situation in which any industry can invest in wind power projects and can use the energy. They feed the energy generated by wind turbines into the grid, and the utility then provides the customer with the energy they need. It’s a very good model that is driving the business very efficiently. That’s why many Indian companies are producing wind power today, they are hedging their power costs, are securing their own energy, and are developing a sustainable business model. Have you heard of a single major Indian company that has filed for bankruptcy in the last 10 years? No, and you will not. Indian companies are focusing on a sustainable business model. Not the wind industry but the culture in India is at the core of creating more sustainable energy. Even in today’s economic crisis, I think India is the least affected country in the world, we are not facing any difficulties: Indian banks are very healthy, and they are continuously financing projects in India, and supporting all aspects of the business.
As a relatively young Indian based company it is tremendously challenging to successfully compete with the established players in the European wind industry and emerge as one of the world leaders in the global wind industry. What have been the advantages that you derived from being an Indian company and having had a different entry point into the market?
The first five to six years we focused on the Indian market. In 2003 we decided, because we had a 50-60% market share in India and there was no more room to expand domestically, that we would explore international markets. India represented only 10% of the world market; we wanted a share of the other 90%. We tailored our approaches to each new country, understanding the geographical needs of each market. First we entered the US market, and then decided to enter China. Finally, we entered Europe. These are the three large pockets of the wind industry. Our US business model was based on the size of the competition there. In China, we understood the domestic needs and low cost requirements related to having to compete with local Chinese manufacturers. That was the biggest challenge for us. We established a large manufacturing base in China to develop local resources and local materials, so that we can become a truly Chinese company. We transferred our technology, hired engineers and sent them to India to train and educate them, and then sent them back to China. We never send Indian engineers over there; we think it is important to develop local talent. The second priority was finding local vendors rather than continuously importing and exporting. Our third priority was building relationships with Chinese developers and utilities. The key success factor in our international expansion is that we are the only company that can say that we are total solution providers. We provide a lot of support to our customers; our approach is to understand their applications and provide technical solutions rather than just dealing with equipment supply. We also provide maintenance and support for twenty years. We are truly custodians of our customers’ investments, and we are building such good relations that in the last five years we have been getting a lot of return business from our existing customers. When we arrived in the global marketplace, a third of the market was the European market, which is highly mature and established. To penetrate the European market we acquired REpower, a German-based wind turbine manufacturer with great technology and engineering expertise. Suzlon and REpower have a highly complementary product portfolio and technical competences, and this acquisition allowed us to gain access to the European market. REpower is a frontrunner in large turbines which are ideal for offshore wind facilities. This is the next generation of wind turbine technology. In order to integrate our supply chain we also acquired Hansen Transmissions, which can develop the gearboxes for the multi-megawatt turbines REpower is producing.
Suzlon is a very good example of vertical integration within the industry. How do you combine your commitment to global vertical integration as well as operating as a Chinese company with Chinese suppliers that aspires to support the local Chinese supplier base?
There is no conflict. Our approach to vertical integration is based on manufacturing each and every component in China rather than supplying it from India to China. We simply add our technology knowledge to the value chain. First we develop our products and technology in India, according to our business model. When we employ people in other countries, we send them to our corporate learning centres in India for three to six months. Once they truly understand the market and technology, they this knowledge back to their country. In China, we have companies along the value chain, the Chinese equivalents of Hansen Transmissions and REpower. The products we manufacture in China are made specifically for the Chinese market.
Do you feel that you get different treatment in the Chinese market being an Indian company, rather than being a European company?
My experience in China is extremely good. We got an extremely warm welcome in China, not only from the government but also from the local people and administrations. I think this is because we are there to support their economy. Secondly, we are creating a huge number of jobs in this country, and this is very important. We are simultaneously developing the right attitude and model for the Chinese market. We receive good support from the government, from local people, from local authorities, and from our business partners. Our buyers are the state-owned utility companies: they are supporting the business by giving us orders, because without them we would not be able to operate in China. However, we feel that the playing field is not completely level. A number of orders, around 60% of the total market volume, go to local Chinese companies based on political decisions rather than free market competition. This is different to India. Although 60% of business goes to local manufacturers in India, this is not because of a state directive, but rather decided upon by private companies. The difference is that Indian customers have a choice. They will pick the best option available, because they ultimately will look for the company that is the best value for money. We have a great model in India, which means that we get a lot of this business, and makes it very hard for our competition to gain any ground.
To enter the European market, you acquired REPower. Would it be interesting to acquire a Chinese company to accelerate your development in the Chinese market, and perhaps use this company to provide additional manufacturing capacity for the Indian market?
I don’t think that China as a manufacturing base can be useful in the Indian market. These types of products are very large, and the product characteristics are specific to each country. I don’t think an Indian product would be useful on the US or European market. There are completely different product ranges. The basic philosophy of the technology is the same, but it is very important to have the manufacturing base in the same market where you are selling the technology. Use the local talent, engage the local business partners, develop the local vendors and customer networks, and use local banks. Then, you are a part of that economy, and you can engage with that government. This will give you sustainable business development.
Your ambition is to become one of the top three turbine manufacturers in the world. What will be the role of China and the Chinese market in realising this ambition?
The first thing is that if you are not strong enough in the Chinese market, you can never be a world player. The China market will be the largest market within three years, once it overtakes the US market. I don’t think the US can exceed 10,000MW per year. In China, expansion is happening rapidly and it is very clear is that China needs more energy. China has a strong local manufacturing base, which is supporting local businesses by reducing costs, and very large wind projects are possible in China. There is a potential for 250,000MW onshore, and 750,000MW offshore.
I strongly believe that China will be the global leader in the next five years. For us, it’s extremely important not just to look at China as a market: by conquering the Chinese market, we can become a global player. Our business plan is very clear: develop our technology in the European market, train our staff in the Indian market, and take it all to China. This allows us to sell German technology at a Chinese price, and this is the Suzlon label in China. In 2007, our turbine price compared to the local Chinese price was 15% higher. In 2008, we were only 10% more expensive and this year our prices will only exceed the Chinese price level by 5%. We aim to be at par by 2010, but without losing the technology and the reliability. China is not just for the market for us, but is the key to becoming more competitive.
China will have to develop competitive wind power technology and large scale projects to meet its rapidly growing energy needs. Undoubtedly, China’s the increasing energy needs will have to be met by renewable energy. We are committed to supporting the ambitions of the Chinese government to meet the energy needs of its people in a sustainable way.
Tonight you will be the first entrepreneur in the wind industry to receive the UNEP ‘Champion of the Earth’ award. What is the message that this recognition send to the world about the future role of the wind industry?
We have to rethink our approach to the development of the world. A very strong focus on renewable energy and climate change is required to leave a better world to our children, and wind power will play a crucial role.
| Company: | Suzlon Wind Energy |
| Position: | Chairman and Managing Director |
| Country: | India |