Acknowledgement:

This final report on Renewable energy in Norway is an outcome of what

we have learned throughout the course INB 410. Mehree Iqbal miss our
course instructor has mentored throughout the making of this project. We
are thankful enough to our course instructor for mentoring our project
and building our knowledge in International Business- International
Competitiveness.
Contents
1. Introduction ............................................................................................................1
2. Pest Analysis ..........................................................................................................2
2.1.1. Political Analysis ..........................................................................................2
2.1.2. Government Policies .....................................................................................3
2.1.3. Political Stability...........................................................................................3
2.2 Economic Analysis ..............................................................................................4
2.2.1. Economic indicators .....................................................................................4
2.2.2. Purchasing Parity: per capital Income and Living Cost ...............................6
2.2.3. Human development .....................................................................................6
2.3. Social Analysis ....................................................................................................7
2.3.1. Language .......................................................................................................7
2.3.2. Religion:........................................................................................................7
2.3.3. Education ......................................................................................................7
2.3.4. Population: ....................................................................................................8
2.3.5. Social Strata: .................................................................................................8
2.4 Technological analysis .........................................................................................9
2.4.1. Infrastructure:................................................................................................9
3. Porters Five Forces Analysis ...............................................................................9
3.1 Threat of new entrance (Barriers to entry).........................................................10
3.2 Competitive rivalry within renewable energy industry of Norway ...................11
3.3 Bargaining power of customers .........................................................................12
3.4 Bargaining power of suppliers ...........................................................................12
3.5 Threat of substitute products ..............................................................................12
4) Porters model ......................................................................................................13
Factor endowment.................................................................................................13
Demand condition .................................................................................................15
Related and supporting industries:........................................................................15
 Firm strategy, structure, and rivalry: ................................................................... 16
The government and chance .................................................................................17
5. SWOT Analysis: ..................................................................................................17
6. Decision................................................................................................................19
7. Recommendation .................................................................................................20
8. Conclusion ...........................................................................................................21
1. Introduction

We selected renewable energy industry of Norway in order to conduct this

report. The task for us was to find a lucrative industry in a developed country
and analysis the potential of investment.
Norway is small country with a population of about 4.8 million bordered by
Sweden, Finland and Russia. Today Norway is the third largest exporter of
natural gas, the fourth largest exporter of oil and the second largest exporter
of fish in the world. The country consistently ranks high in many global
rankings such as Global Competitiveness Index, Human Development Index,
etc. This country is full of natural resources and a hub for doing business.
Kazakhstan has attracted more FDI than any Asian country in last decade and
it is increasing day by day. Renewable energy is one of the sectors which are
very profitable in this country. There are some reasons behind choosing
renewable energy sector of Norway

Norway consistently attracts strong foreign investments. The energy

sector especially draws the most amount of FDI and the countries
with the largest FDI are Sweden, USA, UK, Denmark and the
Netherlands.
The Norwegian market has performed well since 1900 with an
annualized real return of 4.1% per year. Based on P/E ratios Norway
looks cheaper.
The unemployment rate stood at 3.5% in March this year, the lowest
among OECD countries.
Among the developed countries, Norway has the second highest GDP
per capita next to Luxembourg at $52,000 per person.
Norway is a heavy producer of renewable energy, first of all due to
good resources in hydropower.

Page 1
The following part of the report will analyze the investment potential of renewable
energy industry in Norway. This will start with the PEST analysis of Norway which
will analyze the political, economic, social technological aspect of the country for our
investment. Then we will use Porters 5 forces to analyze the four factors related with
our industry. Then well do the analysis of national competitiveness using Porters
model. Then we will conduct SWOT analysis to find the strength, weakness,
opportunity and threats to our industry. Based on these we will come to a decision
about the investment method on the final part of the report with some
recommendations.

2. Pest Analysis

2.1.1. Political Analysis

Norway is a unitary constitutional monarchy with a parliamentary system of

government, wherein the King of Norway is the head of state and the Prime
Minister is the head of government. Power is separated between the
legislative, executive and judicial branches of government, as defined by the
Constitution, which serves as the country's supreme legal document. Norway,
which functions as a constitutional monarchy has seated Harald V as its
current king, while Labor Party leader Jens Stoltenberg just recently began
his second term as Prime Minister. The King of Norway is not considered a
"citizen" and cannot vote. The government efficiency and political stability
are better in Norway.

Page 2
 2.1.2. Government Policies

Norway attracts foreign investors by actively developing the market

economy, wealth of natural reserves and political stability. The government
supports free trade and non-interference. Some limitations do exist but only
applied to the protected areas like fisheries & agriculture. The Norwegian
government is generally positive toward all investments, foreign and local.
For this reason, Invest in Norway, an official and nationwide body for
attracting foreign investments, was established in 1993. Norway imposes no
currency and foreign exchange controls there are no licensing requirements in
force. Norway has fully opened the electricity distribution system to foreign
participation, however, making it one of the more liberal power sector
investment regimes in the world. One important priority is the development
of investments facilities and support of investors. In this regard Norway
adopted several preferences

Lower social security payments

Lower tax rates
Extra deductions in tax rates for individuals

At the end of 2011, the stock of foreign direct investment in Norway

amounted to NOK 1,068 billion, which was an increase of 6% from the year
before. Norway is basically an exporter of raw materials and semi-processed
goods.

2.1.3. Political Stability

Norway is a politically stable country and for that reason they are always
ranked top in doing business and different popular ranking related to
business.

Page 3
2.2 Economic Analysis

2.2.1. Economic indicators

Norway is has always been doing great in Economic indicators. Listed below is a list of
Economic indicators of Norway:

Page 4
Page 5
 Figure: FDI Inflow and outflow (Global Finance Magazine)

Figure: Norway in World Competitiveness Ranking (The Global

Competitiveness Report 201213)

2.2.2. Purchasing Parity: per capital Income and Living Cost

The cost of living in Norway is extremely high, and it was rated the second most
expensive country in which to live in a 2006 Quality of Life Index, compiled by the
Economist Intelligence Unit. It is the most expensive European country in which to
live.

2.2.3. Human development

In terms of employment, over 75% of people aged 15 to 64 in Norway have a paid job,
above the OECD employment average of 66%.

Page 6
Life expectancy is increasing in Norway. In 2011, life expectancy at birth for women is
83.5 years and for men is 79.0 years. Men with a tertiary education have a longer life
expectancy than women with a compulsory education.

2.3. Social Analysis

2.3.1. Language: Norways official language is Norwegian, a northern Germanic

language closely related to Danish and Swedish.

2.3.2. Religion:

2.3.3. Education: Education in Norway is mandatory for all children aged 616. The
Norwegian school system can be divided into three parts:
Elementary school (age 6-13)
Lower secondary school (age 13-16)
Upper secondary school (age 16-19).
Elementary and lower secondary schools are mandatory for all children aged 616.

Page 7
2.3.4. Population:

2.3.5. Social Strata:

Classes and Castes: While income differences are relatively flat, there is a small
proportion of extremely rich owners and managers of merchant fleets. Although the
affluent are likely to own ski huts in the mountains, their huts may not be better
furnished than those of less affluent workers. Conspicuous consumption is not admired.
Leisure time is an important resource for industrial workers, who in 2002 will have five
weeks of vacation annually. Counting national holidays, this brings the number of
working hours in the year down to 1,703 for industrial workers. Immigrant populations
have tended to move into some of the less desirable and less well-paid occupations
such as cleaners and fast food workers.

Symbols of Social Stratification: Affluent individuals signal their wealth by driving a

luxury car, wearing expensive clothing, and taking expensive vacations. They may
have a posh Oslo accent. However, these differences in possessions and advantages do
not symbolize differences in moral worth.

Page 8
2.4 Technological analysis

2.4.1. Infrastructure:

Norway is technologically sound country. It has perfect infrastructure for FDI in

renewable energy industry. Norway, Europe's biggest producer of hydropower, may
increase annual production by 12 percent through 2020 as the country strives to meet
EU targets for higher renewable energy output, an investor survey showed.
Hydropower investors are ready to build new plants and upgrade existing stations. The
Nordic country gets 99 percent of its electricity consumption by running water through
turbines. Increases in power production are subject to permits from Norways Water
Resources and Energy Directorate.

Norway could double installed capacity in its hydropower plants if it builds new cross-
border links to ship the surplus electricity abroad.

3. Porters Five Forces Analysis

Porters five forces is a framework for industry analysis and business strategy
development. It is derived by Michael E. Porter who is the Bishop William
Lawrence University Professor at Harvard Business School. This model
refers to the micro-environment of an industry rather than the macro-
environment, and its the combination of the horizontal competition which
are threat of new entrance, threat of substitute products or services and
intensity of competitive rivalry and the vertical competition which are
bargaining power of customers and the bargaining power of suppliers. Any
change of the five forces may influence the firms ability to serve its
customers and make a profit, thus if any change occurs, the business units

Page 9
may need to reassess the attractiveness of the marketplace of a certain
industry. Now lets have a close look at the Norway renewable energy
industry, to see whether it is an attractive industry or not from the perspective
of the Porters five forces analysis.

3.1 Threat of new entrance (Barriers to entry)

Norway has rich resources on renewable energy. It is the biggest producer of

hydropower in European Union. Over 99% of the electricity production in
mainland Norway is covered by hydropower plants. According to the investor
survey, Norway may increase annual production by 12% through 2020 as the
country strives to meet EU targets for higher renewable energy output.
Moreover, Norwegian government has the willingness to lead Norway to be
an environmental friendly nation and a leader in renewable energy, it would
promote other types of renewable energy other than hydropower such as wind
power on and offshore, osmotic power, solar power and bio energy. Thus, the
market still has a great potential to make profits and the macro-environment
is good for the development of the industry. From this perspective, the

Page 10
industry would be attractive to the investors. However, its not easy to enter
this industry because the initial investment is high compare to other products
and services, especially investors need to spend a big amount of money on
infrastructure and it also takes long time to build. Moreover, since its still an
emerging industry and most importantly it needs the high-end technology and
continuous R&D which will cost a lot in the future. On the other hand,
because of the high complexity, as soon as ones enter the industry, they are
tending to make the profit due to the high demand high differentiation from
other products and services. In a word, there are still great chances for other
new investors to enter the renewable energy market in case of Norway.

3.2 Competitive rivalry within renewable energy industry of Norway

In Norway, the competition within the industry is higher compare to other

counties because its advantages in renewable energy resources, especially the
hydropower resources. However, it is still low within the industry because the
growth rate of the industry is high, and there is still a huge space to expand
for this industry as the supply is always falling behind the demand. Even the
provision of the energy is enough in Norway, because it is the biggest energy
producer in EU, it could export the energy to the other nations so that it is
able to make more profits, so basically there wont be much conflict among
the competitors as they all can make the ideal profit. Moreover, the fixed cost
and the exit barrier is high, the threshold of the industry is high, so there
wont be much investors be able to invest in this industry so that the
competitive rivalry is actually low.

Page 11
3.3 Bargaining power of customers

The bargaining power of the customers is low in this industry because there
are few alternatives and everybody needs the energy supply, customers will
buy energy in any situation. More importantly, the price of the renewable
energy is comparably lower than the fuel energy; customers will prefer to buy
the renewable energy not only because of the price but also by its
environmental-friendly nature. Most importantly, its very hard for the
customers to move to the backward vertical integration. Thus, the bargaining
power of customers is very low.

3.4 Bargaining power of suppliers

The bargaining power of suppliers are high is in this industry because they
could find customers everywhere, there are almost no switching cost and they
could also move to the forward vertical integration easily which means they
can distribute their energy by their own willingness. So the bargaining power
of suppliers of this industry is extremely high.

3.5 Threat of substitute products

The substitute products here refer to other products or services available out
of the industry which can be used instead of the existence ones. The
renewable energy industry is still in the growing stage in Norway also over
the world, and the renewable energy became very popular in the recent years
because of the greenhouse effect due to the greenhouse gas emission and the
big part of it is from the power supply by fuel burning. Besides, the falling

Page 12
 production of petroleum and the fluctuation of crude oil price also lead to the
switching to the renewable energy which is cleaner and environmental
friendly. Due to the nature of the industry, there wont be any threat of the
substitute products as its uniqueness.

4) Porters model

Factor endowment

1) Human resource : even though Norway has a growing business in renewable energy,
there is lack of skilled labors or engineers in present. While hiring of engineers dropped
off during the height of the recession, recruiting has taken off again. After serious
downsizing, companies across Europe are ramping up their engineering staffand
finding themselves in a war for talent. Graduate and experienced engineers in all
disciplines are being heavily recruited, and Norway is leading the way. Norway is facing
a shortage of engineers. Its employers are definitely feeling the crunch as they compete
for top engineers. Norway is currently short 16,000 engineers as there is a high demand
of engineers in oil and petroleum industries. In the short term, Norway is importing
skilled engineers from throughout Europe. However, the need is critical for Norway to
ramp up engineering education efforts. There is a global shortage of skilled experienced
engineers and of engineering students, according to UNESCO.
2) Natural Resources: The ratio of natural energy resources per capita is very high in
Norway, with hydropower representing the most important resource. The countrys
topography and hydrological status results in concentrated rainfall in the western areas
leading in turn to high run-off through waterfalls and river systems. A multitude of
natural lakes and waters at high altitudes in sparsely populated or uninhabited mountain
areas has made it possible to construct a series of dams and regulation reservoirs that can
store water from the spring, summer and autumn for use during the subsequent winter. In
addition to hydropower, Norways renewable energy resources include wave power, solar
energy, wind power and biomass. Together, these alternatives could supply some 20
TWh per annum. Norway has the potential to exploit wind energy, especially in coastal
areas, but the cost of the facilities remains high. Electrically-powered heat pumps for the
exploitation of heat from the soil and other surroundings can also be used to meet some
of the demand for heating. Housing is generally built so as to make maximum use of the
natural heat of the sun. Direct solar heat is also utilized in special niche areas. Biomass,
i.e. wood chippings and other biological material from agriculture and industry, is used to

Page 13
 some degree but has not yet reached its full potential. Wave energy has been the subject
of extensive research, but has thus far only been introduced on a small scale.
3) Knowledge Resource: The Norwegian Government gives priority to research aimed at
confronting the challenges related to energy supply and greenhouse emissions. The
capacity building in the area of renewable energy is being developed in close cooperation
between companies, research centers and higher education institutions. Norwegian
universities and university colleges offer programs and courses related to renewable
energy. There are many organizations that works to strengthen the educational facilities
on renewable energy in Norway, and to recruit young people to renewable energy
research and industry, for example Centres for Environment-friendly Energy Research
(CEERs).

4) Cost of Capital:

There are agencies and other organizations financially supporting the renewable
energy projects.
5) Infrastructure: The quality of the Norwegian transportation infrastructure is quite good,
although its high mountains and deeply cut valleys and fjords combined with a severe
northern climate make inland transportation difficult during the winter months. Railroads
are located mostly in the south while most of the northern regions are accessible only by
ship, car, or aircraft. Good communication e.g. internet is also available.

Page 14
Demand condition

Norway has a small population so it might indicate a small domestic market.

However it has one of the highest GDP per capita in the world. This make the
Norwegian to be sophisticated customers, and due to the fact that the need for
energy in Norway is unavoidable due to climatic conditions especially during
winters, hence this makes energy purchase as one of the commodity that is
purchased by every person, and this in turn contribute to the growth of the
solar energy industry in Norway. Buyer needs are characterized as being
relatively sophisticated. Because of low illiterate rate in Norway also this
makes the customers in Norway to demand higher quality of service which
makes the solar energy industry to be more effective and efficient in the
service they give to customers. The market is still not saturated but medium-
to long-term growth is expected to slow down due to increased saturation of
large markets and shift towards the future. Norway is getting the pressure to
do global business as it wants to be the Green Battery for Europe.

Related and supporting industries:

Norway is ranked 27th among 40 countries on the attractiveness of their

renewable energy markets, energy infrastructure and the suitability for
individual technologies (CIA index) by Ernest & Young. This represents the
current situation of supporting industries of Norways renewable energy
sector, but is not a reflection of the future.

Norway already has a well established source of hydropower energy, but it

also has the capability of installing and producing close to 30000 megawatts
of wind energy from offshore turbines, due to its geographical positioning.
But the plan for the wind farm was put on hold until further notice, with the
company involved citing a lack of political support.

Research, technology, and sound business practices are at the core of the
ongoing development of renewable products and technology in Norway.
INTPOW (Norwegian Renewable Energy Partners) works closely with the
Norwegian ministries and its member companies that include Statkraft,

Page 15
 Agder Energi, Norconsult, Nexans Norway, Navita and Norsk Solkraft to
further renewable energy initiatives in Norway and beyond.
With regards to solar energy, solar cell technology and solar battery
technology continue to improve. The exchange of technology and the
financial interaction between Norwegian companies and the international
clients in this sector is leading to new business and new projects as the
companies and organizations take advantage of strong Norwegian technology
within photovoltaic (PV) and other solution.

In terms of backward linkage, Renewable Energy Corporation (REC) is an

example of a vertically integrated company in the Norway renewable energy
sector. REC produces polysilicon, wafers, cells and modules for the solar
industry, and silicon materials for the electronics industry.

Firm strategy, structure, and rivalry:

Norway already contains the natural resources to generate many different

kinds of renewable energies. But the local community looks to price of
energy, more than anything else. Hence, most of the energy bought in
Norway comes from fossil fuels (45%) and nuclear power (more than 30%).
Fortunately, renewable energy is priced very similar to non-renewable
energy, due to the strong competitive renewable energy industry of Norway.
A total of 28 major companies are in the market, and hence, it is observed
that the industry is close to saturation. The renewable energy sector here is
well-represented by the Ministry of Petroleum and Energy, who believes that
renewable energy areas such as offshore wind may well become the next
energy adventure for this country and has established this framework to
facilitate this becoming a reality
Such initiatives include the support of the establishment of INTPOW
(Norwegian Renewable Energy Partners) that was established early in 2009
in order to build on present strength and future possibilities. This initiative

Page 16
 was taken in close cooperation between the energy industry and Norwegian
authorities

The government and chance

The government plays an important role in terms of supporting the research

and development and through the ministerial support to the solar energy
industry which has overall positive impacts to the five forces suggested in the
theory. Also the stability of the political system which determines the
business environment of the solar industry in Norway is good.
Chance includes all the unpredictable variables which may influence the
four determinants. That is events that are beyond the control of the firms
which may create forces that reshape the industry structure, allowing shifts in
competitive position. These chances or unpredictable variables may be new
inventions; however, the efforts for the research in these sectors might have a
positive outcome as there is more probability of a boost in these industries.

5. SWOT Analysis:

SWOT Analysis is used to find the strength, weaknesses, opportunity and the
threats of a business. As our corporation will invest in Renewable Energy
industry in Norway, this analysis is very important. Through this analysis we
have found out the strength of this industry. We found the weaknesses and
the opportunities of this particular industry. Moreover we have found the
threats to our industry which may cause problem In the future. So all these
analysis is put on a table below which summarizes it.

Page 17
 Strengths: Opportunities:

i) Norway is blessed with the natural 1. Renewable energy is in big demand in

resources required for generation of many European countries.
renewable energy. 2. An increase number of customers who
ii) Institutions are available for the are environmentally conscious.
research of renewable energy. The 3. Significant export potential.
Norwegian Government gives 4. The cost of electricity has been low in
priority to research aimed at Norway compared to other EU countries.
confronting the challenges related to 5. High growth rate of the market.
energy supply 6. Norway has better wind conditions.
iii) Norway has sophisticated customer
for renewable energy due to low
illiteracy rate in the country and also
makes the customers in Norway to
demand higher quality of service.
iv) The quality of the Norwegian
transportation infrastructure is quite
good with transport and
communication medium.
v) Banks and other financial institutions
are there to support this booming
industry.

vi) Ongoing development in research,

development, and sound business
practices.
vii) Large amount of energy produced is
exported, generating immense
revenue
viii) Similar pricing compared to fossil
fuels and nuclear power
ix) Competitive industry close to
saturation, with abundance of
natural resources and advancements
in technology

Page 18
 Weaknesses: Threats:

i) Lack of labors such as engineers
which is about 16000 in the nation. It
is importing labors for doing
renewable energy business.
ii) Population is less in the nation
indicating a small market in the
country.
iii) Government priority is not the
renewable energy industry, halting
important endeavors.
iv) Local demand is low.
1. Wind power projects may need several
years to build and connect to the grid.
2. Threat of new entrants.
3. Investing into large hydro power projects
may take 3-4 years to build.
4. Renewable energy is climate friendly,
although not necessarily environmentally
friendly.
5. Wind farms might negatively impact
vulnerable coastal scenery and occupy
large natural areas.

6. Decision

As we did analysis on this renewable energy industry of Norway, we had to reach a

decision on the investment method or how we should enter the Norway renewable
energy market. There are different method to entry such as- Greenfield investment,
Mergers and Acquisition and Joint Venture.
But from above three investment methods we choose Joint Venture entry to the market.
A joint venture is an agreement between two or more companies to cooperate on a
specific initiative.
We opted for this point of entry because there are already some established company in
the market but they are unable to meet the growing demand. If we choose Greenfield
Investment then it would be costly and we needed much time to set up our business.
For this reason we didnt choose Greenfield Investment. So we will enter into the
market with high investment with another company from Norway to meet the need and
by expanding the business. In this way we can use the experience of that Norway
Company and well have less chance of making mistakes. Also in this method we can
easily meet the current and future needs of the renewable energy market.

Page 19
Moreover we can get benefit from the new rules and regulations set by the Government
for the pharmaceutical industry. This is why we are opting for Greenfield investment.

7. Recommendation

As this is a big investment in a developed country with growing demand in renewable

energy industry, we need to focus on a lot of factors. Some factors we need to focus on
include
The rules and regulations of Norway Government
Usage of new technologies in the future
In future we need to focus on the supply condition
Expanding business

Page 20
8. Conclusion

So from the above analysis we can conclude that our decision to invest in renewable
energy industry in Norway is a best one. From the PEST and SWOT analysis our
decision to invest was proven right. All the economic with political factors are in our
side as we have seen throughout the report. Therefore our decision to invest here is the
best decision from our multinational corporation.

Page 21
Bibliography

1. en.wikipedia.org/wiki/Norway
2. http://www.gfmag.com/gdp-data-country-reports/206-norway-gdp-country-
report.html#axzz2QAukpGEK
3. http://www.egypt-import-export.com/en/country-profiles/norway/investing
4. http://www.indexmundi.com/facts/norway/foreign-direct-investment
5. http://www.oecd.org/norway/
6. http://en.wikipedia.org/wiki/Renewable_energy_in_Norway
7. http://www.renewableenergyworld.com/rea/news/article/2013/02/norway-may-
boost-hydro-output-12-by-2020-survey-shows
8. http://www.nortrade.com/sectors/publications/renewable-energy-
environmental-technology-by-norway-exports/

Page 22