The opportunities for foreign companies in China’s solar sector are changing

As the European solar market demand continues to decrease and other countries are slow to fill the gap, China’s upstream solar sector will face an even greater oversupply situation throughout 2012-2014.  This oversupply will severely impact the opportunities available to foreign companies selling into China’s solar sector.

Background

As in other export industries, the Chinese central and provincial governments’ primary motivation for supporting the solar pv industry over the past 5-10 years has been based on the sector’s ability to create thousands of jobs and boost GDP growth.

As many of these suppliers ability to survive is threatened by a substantial global oversupply and solar incentive reductions in Europe, China will likely continue its support for its domestic solar industry, but in a different way.  While some of the strongest suppliers will continue to receive beneficial financing in the form of loans and grants, support will mostly shift downstream.  Due to the diverse benefits of supporting the downstream domestic solar sector, from political and environmental to economic, this support will likely continue strong for the coming few years.

What specifically are these benefits?

  • Preserve domestic jobs by creating an end market for the increasing module inventory
  • Help leading manufacturers stave off bankruptcy and ride out the industry downturn
  • Sustain a leading position in global pv manufacturing
  • Add much needed power generation capacity
  • Bolster its claims to Chinese citizens that it is taking real action to curb air pollution

Regarding pollution concerns, the government’s reputation among Chinese people as placing economic development before environment is becoming an increasingly serious issue.  As the communication between citizens across the country continues to expand through websites and mobile phone applications like Weibo and Weixin, the government will be faced with either the increased expense of controlling ever more information, or the expense of taking more action to actually reduce air, water and soil pollution which is the source of the criticisms themselves.  We will most likely see a mixture of both in the coming years.

Shifting landscape

As the market in China shifts from being strictly upstream to a more balanced market with domestic downstream demand, so do the opportunities afforded by foreign companies hoping to come to China and capitalize on the industry growth.

From 2005 – 2010, the opportunities for foreign companies were primarily around providing equipment, technology and services to the poly, wafer, cell and module manufacturers who’s products were historically competing on a global field.  Now, as the domestic projects market grows and upstream players keep their capital expenditures low, an opportunity is arising to provide products and technology to these domestic projects and project developers.

Whereas before, using foreign brand equipment and technology was seen as an advantage by mono and polysilicon pv module manufacturers who needed to prove to doubtful foreign project developers of their products’ quality, when selling to domestic projects the foreign brand can be a sign of disadvantage.  Take inverters for example; if GCL were to buy inverters for a domestic project, it will have the option of buying from one of more domestic inverter suppliers including well known names like Sungrow and Guanya.  Though Guanya’s quality may not be as proven as SMA’s, they do have local reference projects,  local service teams that can be deployed quickly in the event of product failure, and they are familiar with the difficult payment terms Chinese projects offer.

Some other key differences in the Chinese market include:

  • The pricing of non high-tech products such as modules, inverters and racking systems is fiercely competitive, with pricing below that of international rates.
  • Project margins are lower in China than in countries like Spain, Germany, and Italy, who in the past have had rich FITs which allowed project developers to use premium brand modules and inverters while still earning a healthy return on investment.
  • The primary buyers of energy and energy projects in China are the 5 major state-owned power generation companies.  Having connections within them is advantageous to securing sales.

New opportunities

An approach that is working for some foreign companies is to joint venture with Chinese partners who offer a local management team with strong sales-related connections, lower cost engineering and manufacturing staff, and easy access to lower cost component suppliers.  That said, the standard module and inverter technologies are already here and the quality continues to improve.  In order to garner the attention of a Chinese company that is worth partnering with, bringing improved technology plus a team of innovators who can help the company compete long term is a great method.   Bringing something new to the table is as important as ever.

Financing will be difficult for foreign investors to stomach because the payment terms are onerous for utility scale projects leading to a level of risk much higher than in more established markets like Europe.  However, changes happen quickly in China, sometimes overnight, and so if at some point the government decides they would like to have foreign lenders involved in projects, maybe we will see favorable changes here as well.

On this new playing field and with the new challenges, capitalizing on China’s solar sector has become even more difficult, yet not impossible.  With 2012 pv installations expected to reach 5-8GW, and 2013 expected to increase even more, the opportunity to sell into the downstream sector cannot be overlooked.  The sheer number of projects is leading to opportunities in Storage, Smart grid applications, Inverters, and O&M.  Without acting fast however, the landscape will surely change again.

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Computer-based jobs provide more than a pay check – Part II

In Samasource’s urban partners, some of the indirect benefits to the workers overlap with those of their rural counterparts, such as an increased sense of independence and decision-making power within the family.  However, unlike in the rural setting, the urban workers have numerous options for other types of work.  Some common options for poor men and women include construction labourer, mechanic, maid, rickshaw driver, car driver (for a company or a family), clothing maker/tailor, factory worker, office assistant, or small street shop owner.  Few of these however teach the modern-economy skills, which can be continuously built upon throughout life commanding higher and higher wages, and are in demand by multinational companies.  A computer job performing work which is primarily in English provides a platform for practicing three skills which as far as I can tell, are critical to improving your life here and leapfrogging out of poverty: English, computer, and general workplace skills.  The last of which includes basics such as office etiquette, meeting deadlines, showing up on-time, decision making and teamwork.

After realizing the failure of the government school system to effectively teach students to think independently, it was easier to understand why many high school and college graduates were still lacking such basic skills.  Though no expert on the school system, I have seen that in Kolkata its class sizes regularly reach 60 – 80 students, it does not penalize teachers for cutting class (which occurs often), and somehow forgot to include critical thinking in the curriculum.  Therefore, for the majority of the youth who cannot afford private school, useful skills are acquired primarily though work.  This point was hammered home when I set out to hire an in-country Quality Control Mgr.  Not a single recent college graduate, whether in Engineering, IT, Business or other, could complete a moderately difficult MS Excel exercise.

Though not the case with every computer-based job, Samasource’s partners, both urban and rural, provide basic computer skills and English skills training programs to prospective employees.  The training, which ranges from 45 to 90 days depending on the partner, is a great start, though it is the continued use of these skills, through data-entry, web scraping, transcription and other computer-based work, that locks the training into long-term memory and allows for developing more advanced skills such as programming, graphic design, and other.

In addition to providing a place to perform the work, at Uran Software Services in Kolkata, the office is the only place many of its employees have personal access to the web.  Facebook and personal email can easily detract from work productivity, though without a computer in their home or hostel, these free services are “the” place where most store photos and memories rather than simply a venue for sharing.  LinkedIn, though not fully exploited by most of Uran’s workers today, will also prove to be a valuable networking tool and proof of their experience if and when they begin to look for new work opportunities outside of their immediate vicinity.

The list of positive impacts in both the urban and rural organizations seems to go on and on.  At each additional work-center visit, I hear new stories and find new additions to the list.  The most important message however, hit home after just a few conversations with women workers during my very first visit to Usha Martin Rural Services,…with these jobs, good things are happening.

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Computer-based jobs provide more than a pay check – Part I

In India, computer-based jobs provide much more than just income to those coming from disadvantaged backgrounds.  The jobs are helping women and men quietly circumvent longstanding cultural barriers such as caste and gender inequality, providing youth access and exposure to the numerous personal tools available online, and helping fill a serious void in the education system.

Samasource’s Indian partners can be divided into two main categories – urban and rural.  The urban organizations are located in and working with youth and women from impoverished backgrounds in cities.  The rural organizations’ training centers and work centers are located in villages 2+ hours from cities, where there are few, if any, other employment opportunities and they are employing youth, women and refugees from the surrounding areas.

For rural Indian women, who are often prohibited from travelling far from home by their parents and/or husbands, or simply unable to do so due to safety concerns, the need to care for their children, or other reasons, the rural Business Process Outsourcing centers (or Rural BPOs) I visited are their only option for steady work due to the office’s close proximity to home.  At one partner, Desicrew Solutions, the workers travel between 30-45 minutes on average to reach the work-center.  If required to travel to the nearest urban center, the trip would take at least twice as long and cost twice as much making it unfeasible.

At Usha Martin Rural Services in Rukka, India, Shama, a 21 year old girl from a traditional Muslim family has found new confidence and enjoys the feeling of independence that this work brings her. “It feels nice to be able to work and earn money and not ask my brothers for my personal needs. Before UMRS, I had not worked and didn’t know what a job was all about. But now, I am confident and plan to work even after marriage.”

The village men, whose movement is much less restricted, often do commute daily or relocate entirely to the cities in search of work.  The resulting village brain-drain stunts village development and stresses the already struggling urban infrastructure.  Involved in village development for more than 9 years, Nitin Gachhayat, co-founder of Drishtee noted, “When the talented and high-earning workers leave the village, they reduce the demand for quality services, such as doctors, which prevents the services from reaching or remaining in the village.”  With jobs now within bicycling distance or a short auto-rickshaw ride, the men can also spend more time in and contributing to their community.  The shift from multi-hour bus/train/car commute to short bike-ride has obvious benefits to the environment as well.

For Usha Martin Rural Services, whose first work-center is located in Rukka, a village in the north-eastern state of Jharkhand (that did not show up on Google maps last I checked), the demand for such work is affirmed by the large number of young men and women lining up to join their program.  On a recent site-visit, one worker revealed to my colleague Sandesh Sharanappa that he had to swim across a stream (on more than one occasion) to get to work.  Usha’s Rukka center is one of the only options for consistent modern-economy work in the surrounding villages.

I have heard that escaping the constraints of being born into a lower caste without leaving your village is still extremely difficult, so the rural BPO is not the silver bullet for all villagers’ problems.  However, after visiting most of the major Indian cities over the summer, it is clear that they are not currently equipped to handle more rural-to-urban migration.  The rural BPO therefore is a promising option for spreading what have typically been city jobs to rural areas and alleviating some of the mounting stress on the city infrastructure.  Despite the rural BPO business model being in its infancy, in 5-10 years time, assuming continued growth in the outsourcing industry, it could become a common and significant source of employment in India and accelerate positive social changes along the way.

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Smart Grid in Kolkata (Calcutta)

Thought some of you might like to see a cutting edge smart grid pilot project around the corner from my apartment in Calcutta.

This jumble of mayhem is a great represenation of the generally messy state caused by the combination of rapid development, implementation by barely-skilled laborers, and poor or non-existent oversight from both the companies doing the work and the public agencies who should be monitoring the work.  The coiled cables belong to internet and telecom companies racing to bring on new customers; the rest I believe are power lines.  Not sure Tesla will need to hire a Calcutta market research analyst anytime soon.

Looking down rather than up while strolling the streets paints a similar picture – the contractors who are hired to repair or install underground utilities rarely put the street in the same shape they found it in when they began the work.  To cut costs, they often just push dirt over the construction area.  With much infrastructure in Calcutta dating back to colonial times, I imagine the subterranean situation to be as hilarious as the one hanging from telephone poles…..and trees.

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Working with Samasource

Aside from an occasional trip to Gold’s Gym to claw back a few pounds of the muscle mass that evaporates each night, I have spent most of my time since June working for Samasource on projects better performed from India than San Francisco.  Samasource’s goal is “to bring dignified computer-based work to women, youth, and refugees living in poverty.”  To accomplish this in South Asia, Samasource works with 8 partners, 6 of them in India, that identify urban and rural poor, train them in computer, English, and general workplace skills, and hire them to complete the computer-based work (mostly consisting of data-entry, digitization, and transcription).  To date, Samasource’s key roles have been to win contracts for this work, distribute the work to the partners for completion (using a competitive model), and ensure its accurate completion before delivering to the clients.  The partners are all social enterprises with varying levels of sophistication and management experience, so one of my original tasks was to determine which ones needed assistance in growing their business (to meet the growing pipeline of work), what type of assistance they needed and consult to the extent possible.

One of my first visits was to Usha Martin Rural Services (UMRS), located in Rukka, a village in rural Jharkhand, which is one of the poorer north-eastern Indian states.  UMRS, one of the more advanced partners, focuses on providing livelihoods specifically to “rural” youth and women.  When I visited their office in June, they had 38 employees; today, just three months later, they have more than 80.  If you drive east about 25 kms from the nearby city Ranchi, turn right when you feel like you’re in the middle of nowhere, left at the guy utilizing the entire road to separate recently harvested rice grain from its husk, then veer down an unsuspecting red dirt road through a eucalyptus grove and around a cow or 20, you’re probably close to their office.  Though remote, the facility belongs to a 30+ year old NGO – KGVK  – which has been conducting research and serving as the headquarters for numerous other village development initiatives as well.

One of those initiatives, the Mobile Learning Bus, compliments UMRS perfectly by identifying and providing basic training to prospective employees from the surrounding villages.

Students on the Mobile Learning Bus

The Mobile Learning Bus, an old coach that has been retrofitted to house 14 computer stations, makes daily trips to the nearby villages where it provides a basic computer skills course (including an intro to Microsoft Excel, Word, Powerpoint, Internet, HTML) to youth and women.  For a total cost of USD $18, the course includes hour-long daily classes and lasts four months.  The student selection process favors girls since the boys have more flexibility to travel away from home and feel more comfortable than the girls in doing so.  Rakesh, the founder and head trainer for the MLB, informs the students of the advanced course offered by UMRS back at the center in Rukka.  Entry to the 60-day advanced course costs ~$40, but the promise of a modern-economy skills and a potential job offer upon completion, make it an appealing investment as well.  This course also adds English and office etiquette to the curriculum – two necessary components in the transition from the village to the office.  (The advanced course was originally provided free of charge, but UMRS found the students were more committed to learning the material when they were charged a course fee.  Starting salary at a rural Indian BPO ranges between $80 – $100 / month)

Upon completing the 60-day advanced course, UMRS interviews the graduates individually and depending on the current staffing need and the competence of the individual, offers an immediate job, puts him/her on standby, or offers nothing.

UMRS work-center

UMRS hasn’t required much hand-holding, however, it has served as a well-functioning model from which to learn and better predict the issues Samasource’s younger partner organizations will soon encounter.  Despite being a for-profit social enterprise, UMRS has willingly shared best practices with organizations that could arguably be called competitors.  This is a key difference I have come to better understand between a “social” business and a “business” business.  As a social business, UMRS makes decisions with a problem-centric mentality, rather than a profit-centric or IP-centric one; if they are helping address the problem – lack of livelihood – that Indian villagers face, then they are willing to face the consequences of counter-intuitive actions such as educating those that could arguably be called competition.  With 456 million Indians living on less than $1.25 / day, according to the World Bank’s 2005 report, and most of them living in villages, UMRS’s founder Mahesh Venkateswaran understands UMRS alone will probably not be able to provide training and jobs to all them.

Possibly the most valuable service I have provided UMRS and other similar Samasource partners has been to bridge the gaps and misunderstandings created from cultural differences between Indian managers/workers and the mostly American Samasource team and clients.  Though I would like to think it is more complicated, I have accomplished this by sitting in the partners’ work centers, for hours at a time, and simply… watching.   Watching the workers complete tasks, watching the interaction between project managers and their workers, and just waiting for confused looks and whispering between workstation neighbors.

For example, a survey we conducted among the workers included numerous questions about the worker’s household.  “How many family members are in your household? How much livestock does your household own?  What is your household income? etc.”  Since rural families may include 4+ generations living on multiple adjacent plots, or on one plot in multiple structures, or in one structure with some inhabitants’ assets married away to another family’s balance sheet, the term “household” is not as clearly defined as it generally is in the U.S.  Sometimes, translating vocabulary like this into relevant terms is not critical, however in this case, where survey data may be used for measuring Samasource’s impact over time, it is very important to get accurate data.

It has been an exciting experience so far to see and contribute a little to some of the social enterprises, including Samasource of course, who are leading the transfer of at least one section of work from the privileged to the poor (The majority of Indians performing BPO work in the well known Indian BPO companies like Infosys actually come from middle class or above).  I will not be surprised if the best of these enterprises grow to 10’s of thousands of employees in just a few years time.

The general sense I get in India is people want to have predictable income and constantly learn new skills useful in the modern economy. This makes sense since it is difficult to make lifestyle improvements, e.g. buying a car or even just renting a home with its own toilet, if your income fluctuates drastically, and it is difficult to find a job that provides steady income without possessing these essential skills.  This mindset is not confined to the lower classes either; I have seen few Indian resumes that didn’t include some form of “learn X skills” or “contribute while learning” in the objective statement.  It is explicitly understood that to move up in life, new and relevant skills are required.  I don’t get the same feeling back home that we have clearly identified and communicated to those who need to hear it most, that regular skills upgrades will also be required to improve life as an American living in the “modern-economy.”  Or more importantly, that new and improved skills will probably be required just to maintain the status quo.

Straying a little bit, so I’ll stop there.  Thanks for listening. 🙂  PHOTOS BELOW.

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Checking In

August 24, 2010

While organizing the weights and dumbbells in the free-weight room at Gold’s Gym last week (yes there is a Gold’s Gym in Kolkata – I was surprised too), I started wondering, “does India have problems, or does Brad have problems?”  After finishing rearranging the circular weights that hang on the sides of the squat rack, in perfect symmetry with the other side I might add, and noticing the three trainers and one trainee staring at me with the same confused look that I had minutes earlier, it was clear.  It’s definitely not me.  🙂

A few days later, contrary to my prediction, Johnny lazy-arms had succeeded in returning the weights to their preferred state of disarray.  Smell the optimism going up in smoke.

Today, even after more than 2.5 months in Kolkata, my good senses begin to pretzel strangle the oxygen from each other soon after walking out my front door, culminating eventually in a twisted synapse splatter of ?FTW is going on here.  Which only makes sense… never, but never really doesn’t make sense either.  The cause – perhaps a combination of the 5 trillion people and creatures occupying every nook, an overwhelmingly fragrant collection of antique wooden buses, exhausted taxis, auto-rickshaws, transport trucks for “Goods Carriage,” drivers that honk at the whiff of each passing smell (about every 10 feet).  Did I mention people?  Everywhere.  All the time. Pushing things. Pulling things.  Eating things…while pulling things.  Everywhere.

Nevertheless, when I add it all together, I actually have begun to enjoy the annoyed feeling because it comes with a free bag of – this place is really cool – beans.  Kolkata is the Dos Equis man of places – the most interesting city in the world.  I say all this from the clean comfort of a somehwhat starbucks-like air-conditioned coffee shop that is not only playing a lead role in my fight against Nescafe being accepted as real coffee, but also a nice place for objective reflection.

This blog will not likely be a collection of random experiences and observations about India (and eventually China), though some of the more amusing ones may slip in from time to time.  My original goal was to explore the true state of development in Asia with a specific focus on social enterprises and businesses working to solve environmental issues (aka cleantech, which could possibly fit under the social enterprise umbrella as well); given the broad scope of these two areas alone, they are dominating my brain-space, and will likely do the same to this blog.  Please feel free to let me know if you think it should be something different.  Especially since this is also meant to serve as an easy way to keep in touch with you. For the past three months I have been working with one such social enterprise, http://www.samasource.org, as their first full-time person on the ground in India, so expect a lot more on that soon as well.

Here are few photos from around the hood.

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