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Suzlon to intensify investments amid rumors of retreating from China

Suzlon has mentioned that it expects the Asian market and off shore wind market in Europe to contribute to the growth of the market, significantly over the next five years. Suzlon has a presence in the offshore wind industry through its subsidiary REpower.

The company has also mentioned that it plans to expand in the highly competitive Chinese domestic market a number of times recently. Its current market share is about 3.4% in China and the company has gone on record saying that they want to take the Chinese piece of the business to the next level.

According to the Chairman, Tulsi Tanti, “We expect at least 30 percent of the group’s revenue has to come from China, we should achieve that in five years.China accounts for about 10 percent of the group’s total revenue.”

The company had recently announced an ambitious plan for China in the medium term, that included a research and development centre in China and listing its Chinese subsidiary, Suzlon Energy (Tianjin) Ltd, on the Hong Kong Stock Exchange.

As a major first step in this ambitious plan, Suzlon in November last year, announced the appointment of He Yaozu as CEO and country manager of its China operations, Suzlon Energy Tianjin Limited. With this appointment Suzlon has become the first wind energy company in China to appoint a Chinese CEO and Mr. He Yaozu has an ambitious road map set ahead of him by the company.

The expectations from the company are also high as they expect him to lead the growth of Suzlon in the domestic market as they look to increase their market share in what is the largest and most competitive wind market in China.

Suzlon, the world’s fourth largest wind turbine maker, has determined to stay and increase investment in the Chinese market, according to a statement published Monday in the Economic Information Daily newspaper in Beijing.

The statement from Suzlon Energy (Tianjin) Limited is a response to market rumors that Suzlon, based in India, will sell its manufacturing facility in Tianjin and retreat from China.

“China, the largest and fastest growing wind power market in the world, has always been a crucial link in our global portfolio. No matter what the consideration, we will not withdraw from this strategically important market,” the statement said.

“More than that, we will intensify investment in China in the future. In the course of exploring the Chinese market, we will cultivate our facilities in China as an important base for global export and R&D,” said the statement.

According to the China Wind Energy (OOTC:CWEY) Association (CWEA), Suzlon was the 15th largest provider of wind turbines in the country in 2010. However, in 2009, Suzlon was the 9th largest.

In recent years, the Chinese wind turbine manufacturing sector has seen intense competition. More wind turbine manufacturers have taken root in China, and prices for their wind turbines have dropped dramatically from 6,200 yuan (about 939 U.S. dollars) per kilowatt in 2008 to 3,700 yuan (about 560 U.S. dollars) per kilowatt in early 2011.

This has left little room for turbine manufacturers to lower production costs, industry experts say. Upgrading the technologies currently being used might be a solution, but it will be hard to realize in the short term, according to experts in the sector.

Intensified competition and higher demands for quality and quantity will lead to a reshuffling of the Chinese wind turbine manufacturing industry, leaving only a small number of companies with sufficient capital and technological strength, industry experts say.

He Yaozu, CEO of Suzlon Energy (Tianjin) Limited, said “If we want to maintain our position as a leading wind turbine maker in the world, we must take root in China, a market which accounts for one half of the world’s total share.” ‘ By the end of 2010, Suzlon’s wind turbines accounted for 1.8 percent of the Chinese market in terms of cumulative installed capacity. However, their market share is less than one tenth of that of Sinovel, China’s largest wind turbine manufacturer.

The smaller market share is partly attributed to Suzlon’s slow response to changing Chinese market demands, which favor larger turbines with variable-frequency and direct-drive technologies. Suzlon has instead focused on producing smaller constant-speed turbines.

“On the whole, I am confident of our future performance in China,” said He.

He said his company will localize its supply chain in order to lower production costs, and supply more value-added services to clients, such as helping Chinese wind farm operators “go global” by utilizing Suzlon’s overseas business and marketing networks.

“Chinese wind power companies are weak overseas. We may help (Chinese wind farm operators) ‘cross the river.’ They may hold all the stakes in the overseas wind farms, or set up joint ventures with us in constructing overseas wind farms. We may withdraw after the wind farms operate for three to four years,” said He.

He said that in return, Chinese wind farm operators will be expected to buy more Suzlon turbines.

Suzlon’s grasp on China’s market might be small, but in other countries, it has the upper hand. Suzlon is a leading wind turbine supplier in Australia, South Africa, Brazil, India and the United States.

The only international player in the Chinese market until 2007, Suzlon Energy (Tianjin) Limited’s facility manufactures a wide variety of wind turbine components, including rotor blades, control systems and generators.

At present, the Chinese market accounts for approximately 10 percent of Suzlon’s total business. Previously, the company expected China to account for one third of its business before 2015.

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