School of Management and Economics Suppliers’ involvement in Innovation & NPD - A study of the wind turbine industry Marketing, Master Thesis, 4FE02E, Spring 2010 Authors: Aamer Khan – 821220-T050 Ashfaq Lodhi – 730626-T137 Tutor & Examiner: Dr. Sarah Philipson Preface This thesis is the concluding part of Master Programme in Marketing at Linnaeus University, Växjö, Sweden. The work conducted during the spring of 2010. Thanks to everyone that has in some way contributed with valuable information to this thesis. First and foremost we want to express our humblest gratitude to Almighty Allah because all our endeavours & successes are due to His Graciousness. We can never forget our beloved parents who made us what we are today. We would like to offer special thanks to Sarah Philipson – our tutor and examiner at Linnaeus University for guidance, timely feedback, comments and tips parallel with the work done. She was the real source of inspiration behind this research. We would also like to thank all 31 Wind Turbine Producing Companies especially, SIEMENS, Gamesa, NORDEX, Acciona, Vestas, GE and WinWinD for participating and providing us useful information in this study. Also thanks to Daniele Calzolari, Sales Engineer, XEMC DARWIND for providing us complete guidance, appreciation and motivation at European Wind Energy Conference & Exhibition in Warsaw, Poland. Växjö, June 3rd, 2010 Aamer Khan Ashfaq Lodhi 0046-700299057 0046-700447748 [email protected] [email protected] II Abstract The purpose of this study is to identify the suppliers’ involvement in innovation and New Product Development (NPD) of wind turbine manufacturing. In this thesis we analysed the sources of innovation and also explored the benefits that the companies derive when they involve the suppliers in the process of innovation and NPD. We present results from the study of 31 wind turbine producers across the globe including, small, medium and large companies. The conclusions are that most of the companies claimed that they involve suppliers in innovation and NPD. In the theory chapter, we have presented different techniques of suppliers’ involvement in innovation: to, with and by (Wintelism) the suppliers. Most of the companies use ‘’to’’ the suppliers technique when they involve suppliers in innovation. Improved quality, lower cost and utilising the suppliers’ knowledge & expertise are the main benefits that companies receive when they involve suppliers in innovation and product development. Key Words: Innovation, New Product Development (NPD), Sources of Innovation, Suppliers, Wintelism. III Table of Contents 1 Introduction .............................................................................................................. 1 1.1 Background .................................................................................................................. 2 1.2 Problem Discussion ...................................................................................................... 3 1.3 Purpose ........................................................................................................................ 4 2 Theoritical framework ................................................................................................5 2.1 Innovation .................................................................................................................... 5 2.2 New Product Development ......................................................................................... 6 2.3 Sources of Innovation .................................................................................................. 7 2.4 Types of supplier involvement in innovation & NPD .................................................. 9 2.5 International Production Networks (IPNs) ................................................................ 13 2.6 Benefits of supplier involvement in Innovation & NPD............................................. 14 2.7 Discussion .................................................................................................................. 15 2.7.1 State of the Art ................................................................................................... 15 2.8 Research Questions .................................................................................................... 16 3 Methodology............................................................................................................ 16 3.1 Sample ....................................................................................................................... 16 3.2 Data Collection .......................................................................................................... 17 3.3 Interview Guidelines ................................................................................................ 178 3.4 Questionnaire for interviews ................................................................................... 168 3.5 Operationalization ..................................................................................................... 19 3.6 Reliability………….…………………………………………………………………………………………..........23 3.7 Validity ....................................................................................................................... 23 4 Empirical Study ........................................................................................................ 24 4.1 Innovation……………………………………………………………………………………………………………..24 IV 4.2 New Product Development……………………………………………………………………………………26 4.3 Sources of innovation…………………………………………………………………………………………….28 4.4 Types of supplier involvement in innovation & NPD…………………………………..............29 4.5 International Production Networks (INPs)……………………………………….......................39 4.6 Benefits of supplier involvement in innovation and NPD…………………………..............41 5 Analysis ……………………………………………………………………………….....................................43 5.1 Innovation…………………………………………………………………………………………………………..43 5.2 New Product Development NPD………………………………………………………………………….44 5.3 Sources of Innovation …………………………………………………………………………………........45 5.4 Types of supplier involvement in innovation & NPD…………………………....................46 5.5 International Production Networks (IPNs)……………………………………….....................48 5.6 Benefits of supplier involvement in innovation and NPD…………………………………….49 6 Conclusion................................................................................................................ 50 7 Reflections.……………………………………………………………………………………………………………..51 8 Further Research ..................................................................................................... 51 9 References........................................................................................................................ 52 Appendix A, Empirical Table ........................................................................................... 58 Appendix B, Total Wind Energy Capacity Country wise……….………………………………………62 Appendix C, Country share of total capacity 2009……….………………………………………........64 Appendix D, Major Components of wind turbine……….……………………………………………….64 Appendix E, How wind turbine works……….………………………………………………………………..65 Appendix F, Wind turbine Manufacturers across the globe……….……………………………....66 Appendix G, Questionnaire for interviews………………………………………………………………….73 V List of abbreviations GDP – Gross Domestic Product GWH – Gigawatt Hour MW – Milliwatt NPD – New Product Development TWH – Terawatt hour VI 1. Introduction Global economic growth, particularly in populous emerging markets, and the urbanization of societies around the world are increasing demands for energy and other commodities. The demand for energy is still increasing and two main reasons for this are the population growth and enhanced life style. It is expected that within the next 50 years the population will double and strive for better social and economic development, Sen (2004). Enhanced lifestyle and energy demand raise together, the wealthy industrialized economies, which contain 25% of the world’s population, consume 75% of the world’s energy supply, Fells (1990). Birger T. Madsen, Head of R&D BTM Consultant Aps Denmark emphasizes the importance of innovation in wind turbine industry and explains that it is vital to achieve the goals of reducing global warming effect on climate. ‘’To achieve the goals of Copenhagen conference (2009) on global warming and climate change, the use of renewable energy is vital. Innovation in renewable sector will play important role to achieve the goals to reduce the global warming impact’’. Global climate change is caused by excess carbon dioxide and other gases in the atmosphere. However, many problems are caused due to increased use of energy in the world. The use of non-renewable sources like, fossil fuel, create potential phenomena such as pollution, acid rain precipitation, ozone depletion, stratospheric and global climate change. All these lead to greenhouse effect. Carbon dioxide (CO2) is the major cause of global warming and a notable threat for the world’s climate. These issues must be taken into consideration simultaneously if humanity is to achieve a bright energy future with minimal environmental impacts. In order to reduce these unwanted and harmful effects, it is necessary to shift towards the use of environmental friendly, clean and renewable energy sources. Another important reason to shift from non-renewable energy sources to renewable energy sources is that the non-renewable