EnGuang Solar: the strategic shift to monocrystalline solar panels? - Teaching note

The top management of EnGuang Solar, a Chinese Tier 2 solar panel manufacturer, faced a crucial strategic decision. Recent technological developments and manufacturing process improvements in the production of solar panels meant that higher efficiency monocrystalline panels could now be produced at a lower cost than previously thought possible, creating a potential opportunity for the company to increase its watt peak production without substantially increasing costs per watt. The company had historically exclusively produced multicrystalline panels and needed to make a decision whether to switch to mono panel production. Adopting the new technology would require a significant shift in the company?s raw material supply chain and a re-tooling of its manufacturing equipment. It also raised some challenging questions regarding what to do with existing multi specific inventories if the company decided to transition to the new technology.

Collection: IESE (España)
Ref: CT-40-E
Format: PDF
Number of pages: 19
Publication Date: Sep 30, 2024
Language: English

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Description

The top management of EnGuang Solar, a Chinese Tier 2 solar panel manufacturer, faced a crucial strategic decision. Recent technological developments and manufacturing process improvements in the production of solar panels meant that higher efficiency monocrystalline panels could now be produced at a lower cost than previously thought possible, creating a potential opportunity for the company to increase its watt peak production without substantially increasing costs per watt. The company had historically exclusively produced multicrystalline panels and needed to make a decision whether to switch to mono panel production. Adopting the new technology would require a significant shift in the company?s raw material supply chain and a re-tooling of its manufacturing equipment. It also raised some challenging questions regarding what to do with existing multi specific inventories if the company decided to transition to the new technology.
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Year: 2018
Geographic Setting: China
Industry Setting: Energy and environment

Learning Objective

This case is designed to be used in any cost accounting or management control course, although it can also be very useful in decision-making or even innovation and technology courses. It has a dual objective: firstly, to analyze a long-term decision about whether the company should or should not transition its production (which is initially irreversible) of multi-panels to mono-panels. If the decision is affirmative, the company must then analyze what to do with the current inventories of multi-panels, both its raw materials (wafers) and its finished products. Both decisions allow covering relevant cost accounting concepts such as differential costs, opportunity costs, sunk costs, contribution margin, profitability, etc. These are two very common and regular decisions across various sectors: firstly, what companies can do when faced with technological changes in their industries, and secondly, what to do with inventories that may become obsolete as a result of that technological innovation.
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"EnGuang Solar: the strategic shift to monocrystalline solar panels? - Teaching note"