Based on Porter’s Five Forces analysis performed, coupled with the SWOT analysis, the transportation and storage industry – specifically focusing green energy storage technology – is attractive but poses inherent risks. Environmental awareness and “going green” have become more attractive to consumers in recent years, with a steadily increasing number of consumers purchasing green technologies such as electric vehicles and smart appliances. Similarly, governments around the world are recognizing factors such as climate change being problematic and are outsourcing to non-government organizations for assistance; as such, there are numerous opportunities to enter the market.
But while the opportunities exist, so do risks that could prevent entry into the marketplace. Traditionally, consumers have leaned towards vehicles that utilize fossil fuels like gasoline and despite increasing vehicle, maintenance and gas costs, the majority of vehicles still tend to be gasoline-only. Similarly, in electric grid and commercial segments, existing companies continue to provide strong competition, better brand recognition and vastly superior resources financially.
Overall, the green energy storage technology industry is be a moderately attractive industry to be in. For A123 Systems specifically, they hold a number of competitive advantages including no external suppliers, strong synergy as a result of cross-functional partnerships with other companies and superb proprietary technology that is amongst the top of the industry. While they do have a cash-flow issue at the time of this case study and face stiff competition from others within the industry, the opportunities identified outweigh the threats and make this a moderately attractive industry for current and future growth and profitability.
Strategy
Competitive Advantage in the U.S. and Global Markets
A123 Systems main competitive advantage is that they created a product far more advanced than the typical average lithium-ion battery. Their Nanophosphate electrode design, while not perfect, is technically superior to the high-quality batteries created from other competitors. As competition grows in the market, the competitors have the disadvantage due to their lack of experience. this will also increase A123 Systems competitive advantage.
A123 Systems geographical advantage can increase their success. They are strategically position in North America, Asia and Europe which gives them a global competitive advantage. Their battery system helps perform the bestselling hybrid bus around the world and China’s largest domestic auto maker SAIC, chose A123 systems to supply them batteries for their hybrid automobile. By winning SAIC this helps A123 by showing the rest of the world how good their products are and earn other contracts in the future.
A123 Systems must be aware that their current advantages can change rapidly if they don’t continue to make progress. Other competitors can find a faster way to create these products which can really hurt their current competitive advantage.
Recommendations
A123 Systems has built a reputation for producing high-quality products, particularly lithium-ion batteries. However, despite a high-quality product, it is no longer as innovative as it once was. With more and more competition in the green energy storage technology industry and a cash-flow issue, A123 Systems will need to make immediate changes to continue its market growth.
We would first recommend that A123 Systems focus on its short-term and long-term domestic growth-strategy, as opposed to the traditional outsourcing method of production in Asian countries. A crucial part of this strategy will be to improve the automation of the production process while continuing to create high-quality and reliable products. By increasing automation, A123 Systems will be able to produce more products domestically and thus can drive sales. With many Americans leaning towards American-made products, this would provide a new competitive advantage while also providing a much-needed cash flow.
In addition, we would strongly recommend that A123 Systems focus in both the short-term and mid-term on growing its presence and reputation in the transportation and commercial sectors. With more and more cities, states and countries focusing on green technologies and reducing their environmental impacts, creating new partnership while expanding existing partnerships within transportation providers will be especially critical. A particularly important part of this will be the balancing of dynamics; mid-level management in particular will need to ensure equitable distribution of duties to ensure service-level agreements are mutually beneficial. The majority of the existing contracts A123 Systems have existed to this point in metropolitan areas; the company can gain a strong competitive advantage by integrating into more rural communities (both in the transportation and commercial electric grid sections) that are currently underserved in these capacities. Considering the strong barriers to entry that exist for new companies,
Finally, we would recommend that A123 Systems invest strongly in their Research & Development. With the rising cost of technology creation quarter after quarter, A123 Systems must bootstrap to find its footing back as an innovator, such as they were in the early days of lithium-ion batteries with Nanophosphate. By investing more into their Research & Development programs, they will be able to reinvigorate their efforts to become a top-tier firm within green energy storage technology and receive brand recognition that will benefit them immensely in marketing their products.
