Solyndra Bankruptcy and Financial Crisis Assignment

Solyndra Bankruptcy and Financial Crisis Assignment

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Solyndra Bankruptcy and Financial Crisis Assignment

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Introduction

Solyndra, a solar system manufacturing company filed for chapter 11 bankruptcy due to the financial stress (US Congressional Committee on Energy and Commerce Report). The profitability of a company determines its ability to operate sustainably. However, for the case of Solyndra, the profitability was low due to the changes in the market competition and poor corporate and financial decision-making. The company’s business strategy involved selling the products to the value-added resellers. Also, it offers differentiated products that made it unique and attractive to the consumers. However, one of the factors that made the company unprofitable was the rising in the prices of the polysilicon which would translate in the increased cost of production. On the other hand, many players got into the market thus increasing the price pressure. The solar PV module price reduced by nearly 300% (US Congressional Committee on Energy and Commerce Report).

The operational sustainability is important for any business. A business must always balance between its costs and the pricing. The increase in the competition meant that the prices of the solar product would reduce. It was a must that Solyndra reduces their pricing to retain their customers. Therefore, I would be recommendable that the company diversify its products to reduce the competition pressure (“Solyndra- Yes, It Was Possible To See This Failure Coming). Secondly, the company could have focused on producing value-based products that meet the specific needs of their consumers and engage innovative operational strategies. Product differentiation gives the consumers a reason why they should go for the Solyndra products instead of the alternatives offered by the other players in the market.

The Solar companies in the U.S are becoming bankrupt as the companies in China thrive. The Chinese companies have dominated the solar industry as they occupy about three-fifth of the global production capacity (“China Benefits As U.S. Solar Industry Withers (Published 2011). Some of the factors contributing to the differences include the variations in the cost of financing. The Chinese companies are able to access the low rate loans from the state owned banks. Besides, the companies enjoy economies of scale and this means that they can offer the products at a lower costs thus winning the market favour. Solyndra could not adjust to the price requirement since lowering their prices meant that they would operate at a loss.

Solyndra could not scaleup their production to enjoy the economies of scale. The price target for the Solyndra module was between $2.00 and $ 2.35; though, they were only able to offer $3.24/watt (US Congressional Committee on Energy and Commerce Report). Besides, the manufacturing costs for the company was greater than $6/watt and this means that company already operated at a loss. The changes in the price patterns and the increased cost of production drove the company into bankruptcy.

Finally, using taxpayers’ funds for business investment and government loans to private companies is not bad. However, proper measures must be developed to ensure that the investments made earn profit. Despite the challenges encountered in the case of Solyndra, there are cases where the business investments yield profit and thus recommendable. The Solyndra’s market niche was the commercial rooftops and thus thy focused on producing the solar electricity for the commercial buildings. Besides, the company focused on the higher cost niche and this made it difficult for them to compete with the new entrants who were cheaper.

Solyndra Bankruptcy and Financial Crisis Assignment

Work Cited

“China Benefits As U.S. Solar Industry Withers (Published 2011).” The New York Times – Breaking News, US News, World News and Videos, 2 Sept. 2011, www.nytimes.com/2011/09/02/business/global/us-solar-company-bankruptcies-a-boon-for-china.html.

“Solyndra- Yes, It Was Possible To See This Failure Coming.’’ (n.d).Forbes, www.forbes.com/sites/timworstall/2011/09/17/solyndra-yes-it-was-possible-to-see-this-failure-coming/.

‘‘US Congressional Committee on Energy and Commerce Report.’’ (n.d). The-Solyndra-Failure. https://www.govinfo.gov/content/pkg/CHRG-112hhrg76267/pdf/CHRG-112hhrg76267.pdf

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