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Energy leapfrogging in China and India

Two firms in the wind power sector illustrate how companies in the developing world can take advantage of increasing access to technological know-how, while staying within the bounds of intellectual property law, says Joanna Lewis.
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China and India’s energy development pathways are a frequent focus of international attention. In the climate change arena, the two countries’ current and future energy growth trajectories raise concerns about increasing greenhouse-gas emissions. China recently surpassed the United States as the largest national emitter of greenhouse gases, and India will soon surpass Russia to become the fourth-largest emitter after the European Union. China and India use coal to fuel most of their electricity generation, and both countries have plans to expand their coal power capacity considerably in the coming decade. For these reasons, China and India are perhaps two of the least likely places one might expect to find a burgeoning wind power industry.

While there are many potential benefits to local wind manufacturing, there are also significant barriers to entry into an industry that contains companies which have been manufacturing wind turbines for more than 20 years. In developing countries, limited indigenous technical capacity and quality control makes entry even more difficult. International technology transfers can be a solution, although leading companies in this industry are unlikely to license information to companies that could become competitors.

Nevertheless, India and China are both home to firms among the global top 10 wind turbine manufacturing companies. India currently leads the developing world in manufacturing utility-scale (multi-kilowatt) wind turbines, and China is close behind. Initiatives by domestic firms, supported by national policies to promote renewable energy development, are at the core of wind power innovation in both countries.

Leading firms

Suzlon, an Indian-owned company, emerged on the global scene over the past decade, and is proving itself to be a worthy competitor among more established wind turbine manufacturers. As of 2006, it had captured 8% of market share in global wind turbine sales: a modest share, but one that has been increasing annually. Suzlon is currently the leading manufacturer of wind turbines for the Indian market, holding 52% of the market share in India. Its success has made India the developing country leader in advanced wind turbine technology.

Goldwind recently emerged as the leading Chinese wind turbine manufacturer. The company currently holds 2.8% of market share in global wind turbine sales, reaching the top 10 for the first time in 2006. Within China, it captured 31% of sales in 2006. The company is rapidly expanding production, and has benefited from government policies that promote the utilisation of domestically manufactured wind turbines in Chinese wind farm projects. In 2006, Goldwind installed 442 megawatts, by far its largest annual installation to date.

Suzlon and Goldwind have used similar strategies to access wind power technology from developed-country firms. Although there are several technology transfer models available to a company looking to enter the wind industry, both Suzlon and Goldwind decided to pursue multiple licensing arrangements with established, yet second-tier, companies.

The acquisition of technology from overseas companies is one of the easiest ways for a new wind company to quickly obtain advanced technology and begin manufacturing turbines; however, there is a disincentive for leading wind turbine manufacturers to license proprietary information to companies that could become competitors. This is particularly true for technology transferred from developed to developing countries, where a similar technology potentially could be manufactured in a developing country with less expensive labour and materials, resulting in an identical but cheaper turbine. Consequently, developing country manufacturers often obtain technology from smaller wind power companies that have less to lose in terms of international competition, and more to gain in license fees. The technology obtained from these smaller technology suppliers may not necessarily be inferior to that provided by the larger manufacturing companies, but it may have been used less and will therefore have less operation experience.

Licensing

Suzlon’s licensing arrangements with Sudwind, Aerpac, and Enron Wind provided it with the necessary base of technical knowledge needed to enter the wind turbine manufacturing business. Building on the knowledge gained through these licenses, Suzlon also formed many overseas subsidiaries. Some overseas partnerships were formed with foreign-owned companies, either to manufacturer a specific component, such as its gearbox company in Austria, or to undertake collaborative research-and-development, such as its Netherlands-based blade design centre and its gearbox research centre in Germany. Suzlon also situated its international headquarters in Denmark, which is a major industrial centre for the wind turbine industry.

Goldwind’s licensing arrangements with German wind turbine manufacturer REpower allowed it to jump into the wind turbine industry with little indigenous knowledge. These arrangements provided the transfer of enough technical know-how that Goldwind could innovate upon the transferred technology. It has more recently chosen to also pursue licensing arrangements with Vensys to gain experience related to larger turbine designs.

While Goldwind has relied only on licensed technology to date, Suzlon has expanded beyond the license model, and has purchased majority control of several wind turbine technology and components suppliers. These acquisitions include leading gearbox manufacturer, Hansen, as well as REpower. This combination of licensing arrangements with foreign firms and internationally based research-and-development and other facilities, complemented by the hiring of skilled personnel from around the world, has created a global learning network for Suzlon, customised to fill in the gaps in its technical knowledge base. Suzlon has been able to draw upon this self-designed learning network to take advantage of regional expertise located around the world, such as in the early wind turbine technology development centres of Denmark and the Netherlands. Suzlon differs from Goldwind because it has not restricted its technological learning and innovation networks primarily to India, while Goldwind has remained centred on China.

However, Goldwind’s lack of internationally oriented expansion does not necessarily mean that it has been unable to tap into regional, or even global, learning networks. The company’s origins in northwest China’s Xinjiang autonomous region put it at the centre of wind turbine technology experimentation in China in the early 1990s. As wind development momentum shifted eastward, Goldwind also established manufacturing facilities in east China, including in the new manufacturing hub around Beijing and Tianjin. Popular wind farm sites such as Dabancheng, in Xinjiang, and Huitengxile, in Inner Mongolia, have served as test sites for almost all of the leading global wind turbine manufacturers. Many firms, including Vestas, NEG Micon, Nordex, Bonus, Zond, and Tacke, all installed turbines in China during the 1990s. Consequently, while they tested their designs in China, Goldwind was able to benefit from knowledge that these manufacturers had gained in other wind learning hubs of the world. In addition, Goldwind hired employees trained by foreign-owned firms (often when they were based in China), taking advantage of the small but specialised work force foreign wind power technology firms effectively developed within China.

Since both Suzlon and Goldwind are most successful at home, each company’s outlook for future success is largely focused on its continued ability to thrive in domestic markets. India’s wind power policies, although lacking a clear national direction, are thriving on a regional basis. Goldwind has relied greatly on China’s policies that mandate local content, as well as an unstated preference for Chinese-owned technology. The companies’ continued success will also depend on how their turbine technology stands the test of time in reliability, as well as their ability to continue to design larger and more efficient turbines. If Indian and Chinese manufacturers are able to capture significant cost savings by manufacturing turbines locally, there would be excellent potential for both locations to serve as manufacturing bases for regional export. Suzlon and Goldwind believe that they are able to beat the prices being offered by their foreign competitors by locally sourcing their turbines.

The leapfrog effect

The institutional and other barriers present in large, developing countries such as China and India certainly challenge simplistic notions of energy leapfrogging. But substantial technical advances have been possible in relatively short amounts of time. It took both countries less than 10 years before companies were capable of manufacturing complete wind turbine systems, with almost all components produced locally. This was done within the constraints of national and international intellectual property law, and primarily through the acquisition of technology licenses or purchasing smaller wind technology companies.

Suzlon’s growth model, in particular, highlights an increasingly popular model of innovation for transnational firms, which is based on globally dispersed operations and utilises regional variation in technical expertise and low input costs to its advantage. Expansive international innovation networks allow it to stay abreast of wind technology innovations around the world, which it can then incorporate into its own designs through extensive research-and-development facilities. It has developed this network of global innovation subsidiaries while maintaining control of enough intellectual property rights to remain at the forefront of wind turbine manufacturing and sales around the globe. By contrast, Goldwind has pursued research and manufacturing operations that are primarily China-based, which has limited its interaction with hubs of wind power innovation expertise outside China. However, China is becoming a hub in its own right, with diverse international players actively manufacturing wind turbines, and many in close regional proximity.

These illustrations of energy leapfrogging demonstrate how two developing country firms used a creative blend of strategies to enter new technology markets. A combination of licensing intellectual property, creating strategic technology partnerships, accessing regional and global learning networks and taking advantage of regional advantages like lower labor costs, were all important components of each company’s successful business model. As technology development becomes increasingly global, developing country firms can and should take advantage of their increasing access to technological know-how, which was previously developed primarily by and for the developed world. The lessons of Suzlon and Goldwind’s success in harnessing global technology for local – and potentially global – use illustrate new models of technology development in the developing world.


Dr. Joanna Lewis is a senior international fellow at the Pew Center on Global Climate Change and an adjunct professor at Georgetown University's Walsh School of Foreign Service. Her current research focuses on mechanisms for low-carbon technology transfer in the developing world and options for post-2012 international climate agreements. She has worked extensively in China examining renewable energy technology industry development, and advising the government on renewable energy policy design.

An extended version of this article appeared in Studies in Comparative International Development, Volume 42, Issue 3, December 2007.

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评论 comments

Default avatar
匿名 | Anonymous

好点子

有创意,视野开阔,希望真正有能力发展这些事业的人能有机会读到这样的文章

Good idea

This article is creative and helps broaden my insight. I hope those who are capable in this field can read this article.

Default avatar
匿名 | Anonymous

蓝天

希望我们优秀的风电企业能够尽快拥有自己的核心竞争力!当然也希望我们的政府能够给我国从事“清洁能源”的企业更多的政策倾斜,让她们做强做大!我们也就会拥有多一些的蓝天了!

在“两会”上温总理也多次提到环保的重要性!最新消息:国家环保总局也升格为环保部了可见一般!

明天的天一定会更蓝!

Blue sky

Hope the excellent wind power industry of China will have its own core competitive power soon. Also hope Chinese government can give "clean energy" companies more policy support and help them grow stronger. At that time, we will have more blue sky. Mr. Wen emphasis the importance of environmental protection in National People's Congress (NPC). The latest news: Chinese environment watchdog will be upgraded to ministry. I believe tomorrow will be a blue and clean future.

Default avatar
匿名 | Anonymous

补充两点

1.另一处风力发电场将建在甘肃。这里提供一篇文章(中、英文)阐明中国政府已开始集中宣传推介甘肃省的风能潜力。
2.我赞同我们每个人必须权衡这些模式的影响,没有人例外,无论在任何层面,无论何地。这也包括美国的市场投机者。与清洁技术有关的公司也许需要以全球视角组织生产,以便从风险投资中获得最大收益。

Two points

1. Gansu the next area for wind siting.

Here is an article (in English and Chinese) which highlights that the Chinese government is already focusing attention on publicising Gansu's potential wind resources:

2. I agree, we must ALL consider the implications of these models.

No one is excluded from thinking about what lessons can be learnt from these models, at any level or anywhere. This means people involved in market speculation in the US, too. Companies involved in clean tech might need to take a more globalised approach to production in order to make the most out of VC.

Default avatar
匿名 | Anonymous

竞争是好事

我特别高兴看到风能公司在中国和印度的成功。这两个国家对煤的需求都在增加,在这样的情况下,风能有助抵消煤电站造成的污染。

我真的相信风能和太阳能是我们的未来能源。如果,这些风能公司能开始开展全球电力销售,那就太棒了。

竞争能激励创新,而创新意味着高效。在风能方面来说, 就是可有更大的能量来低价地生产风轮发电机。如果,这些机器能以有竞争力的价格在全球销售,那么无疑,各个国家就会增加风力发电能力。

Competition is good

I am particularly pleased to learn of wind power companies being successful in India and in China. With both of the countries increasing appetite for coal, wind energy is necessary to help offset the amount of pollution caused from the coal plants. I truly believe that wind energy, along with solar energy, is our power source of the future. If these countries were to start selling globally would be great. Competition makes for better innovations being made more efficiently; in this case greater energy producing wind turbines at a cheaper price. If these turbines were being sold at competitive prices all around the globe, countries would no doubt greatly increase their wind power capacity.

Default avatar
匿名 | Anonymous

着眼大局

我同意同行们的评论。这些公司不应该把注意力集中在市场如何影响他们的成本上。国际竞争催生了技术革新,并且我们每个人都从中获利。然而,我们不能忽略了更长远的考虑,即由于越来越多的风力发电厂的出现,煤电厂应逐步被淘汰和取缔,否则我们永远都不能控制当前的环境污染问题。-托马斯 佩恩

The Big Picture

I agree with my fellow commenters. These companies shouldn't be focused on how the market will affect their costs. Global competition creates innovation and everyone benefits. However we can't lose sight of the bigger picture: as more wind farms are produced, coal/oil power plants need to be phased out or we will never get control of this pollution problem.
-Thomas Payne