Trends and Challenges in Energy Sector

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Advantages: This alternative would give the company a competitive advantage of being a sole supplier of a highly efficient silicon wafer. It would also help the company protect its intellectual property. We could expect increased demand for solar energy when the cost of silicon wafers due to “Direct Wafer” technology decreases. The production efficiency would further increase from the fact that there is no loss of silicon from implementation of this technology. The total cost of silicon wafers could reduce by as much as 80% (Johnson, 2009) and this could lead to current products being replaced.

Disadvantages: The Company could be at a cost dis-advantage by being locked into the US cost structure conditions resulting from grant of the DOE loans. The company was also aware of the high labor costs and tax structures present in the United States when compared to Asian countries (where the companies were backed by the governments). Furthermore, building such manufacturing organizations in the US is rare and it takes a great deal of time. In addition to that, increasing the team up to 900 employees and increasing sales to $400 was not going to be an easy task.

Option 2: “Partnership Approach”

This option would entail entering into a licensing agreement or Joint Venture (JV) partnership with many of the Asian companies to achieve accelerated growth. The Asian companies had strong balance sheet, had large organizations in-place experienced in PV manufacturing and factory operations. These companies already have good supply chain network and market share. 80% of all solar cell manufacturing was expected to in Asia within the upcoming couple of years. 1366 technologies could gain scaling very rapidly with this arrangement. The direct wafer technology and groundbreaking production methods together would result in lower costs and higher efficiencies.

Disadvantages: There were two main potential risks with this approach. Firstly, the IP protection was at risk if the company entered into agreement with a wrong “Asian” partner. The IP laws in countries like China are not as uniform as in countries like USA. The interpretation and implementation of such laws in those countries is complicated thus making it necessary for the companies to have strong IP defense strategy as described in exhibit 7. Secondly, partnering in another country would jeopardize the relationship with DOE, which had been formed over the last several years.

We can deduce from the above discussion of the pros and cons that it was imperative for 1366 technologies to get a correct strategy. The advantages and disadvantages of each of the options were quite realistic. By going it alone, the company would protect its freedom and IP but grow at a small pace. If the company followed the approach of a JV it can accelerate its growth but could get exposed to loss of IP protection. Even with a strong local Asian partner it was a difficult choice to move to Asia and the odds of this happening are reasonably high as many companies had lost their IP advantage by operating in those countries.

Financing Options and Implications:

Recommendations:

Looking at the detailed critical analysis performed and the pros and cons of both the options, it is recommended for 1366 technologies to go ahead with the first option which is to manufacture its own wafers and expand and also have JV with an Asian partner with tiered defense IP sheid. The potential impact and the long term benefit of this would be that it is going to reduce the cost for solar power significantly and it would then become cost competitive against the coal power in many of the parts of the United States over the period of the next 10 years.

Another major advantage is associated with the environment and if the company positions the production of the solar energy as one of the best environment friendly and renewable as well as cost effective alternative, then the company would also be able to reduce the million tons of emissions of CO2 from the environment.

Lastly, by creating its own manufacturing base, the owners of 1366 can capture a larger portion of the US wafer market of around $ 20 billion and also most of the local manufacturers would be motivated to set up their operations or make partnerships in the US. This is ultimately going to prove to be a competitive advantage for the company.