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UNIVERSITY OF HALMSTAD SCHOOL OF BUSINESS AND ENGINEERING MASTER THESIS 15 HP.
Factors affecting alternative
automotive fuel industry
Supervisor: Dr. Henrik Florén
Authors: Naveed Nasir 830418-T152 Shoaib Arshad 840120-T150 Xiaorui Sun 870212-T081
I
ACKNOWLEDGEMENT
This dissertation was written at the Technical Project and Business Management Program during the spring semester of 2010 in Halmstad University.
We would like to express our gratitude toward our supervisor Dr. Henrik Florén. We could not have finished our dissertation without his keen help and kind support. He has always helped us to find the correct material. Moreover, in each seminar, he gives us a lot of suggestions and his own experiences so that we can complete our thesis successfully. We are also thankful to all the respondents who took part in this research.
We would also like to give our thanks to our opponents who have given us lot of useful opinions, which helped us to find out the problems.
Finally, we would like to pay our gratitude to our family members, friends and loved ones. Without their support, we could not finish our thesis on time.
Halmstad, 2010
Naveed Nasir, Shoaib Arshad and Xiaorui Sun
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Summary:
Environmental protection, shrinking of fossil fuels and problems like energy security has resulted in emergence of a rapid growing alternate automotive fuel industry. This research is pursued to identify and describe factors that affect sustainable growth of alternative automotive fuel industry and advice firms in their strategy development for sustainable growth.
The theoretical framework includes theories including different internal and external possible factors that may affect an emerging industry.
The research methodology of this study constitutes of qualitative research approach, comprising of both primary and secondary data. Primary data for this study is collected by conducting a total of 9 interviews with officials from three Swedish alternate diesel engine oil manufacturing companies. An overall industry analysis is conducted through PEST analysis, data for this PEST analysis is gathered through official government websites, press releases, newspapers, educational and environmental institute websites and scientific journals. Interviews conducted with company officials also served the purpose.
The analysis of this study shows that government policies and subsidies have played an important part to make these companies enter this market. Two of the companies included in the case study were already active in closely related fields for a number of years and only entered this market when favorable government regulations were available. The future of these companies is very much associated with government regulations and companies those fall beyond these regulations face difficulties to get subsidies and therefore in their growth.
Awareness of people about cleaner fuels is brought through media, education and government policies that include taxes and tax rebates on different kind of fuels.
The companies bet on new technologies to resolve concerns generated by their fuels i.e. food versus fuel debate. The authors analyzed technology to be an important factor if companies want to remain in alternate fuel business for a long period of time.
The authors suggest companies to build their tangible and intangible resources i.e. raw material, technologies, human resource flexibly to adopt diversified businesses in case if some radical changes in fuel industry seizes their growth. It has also been seen that standardization of products can prove helpful for companies to produce a working market.
Keywords: growth of a sustainable industry, alternative fuel, natural resources.
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TABLE OF CONTENTS 1. Introduction ....................................................................................................................... 1
1.1 Background ............................................................................................................. 1 1.2 Problem discussion................................................................................................. 2
1.3 Definitions................................................................................................................ 4 1.4 Limitations ............................................................................................................... 5
2. Theoretical Framework .................................................................................................... 6
2.1 Growth of sustainable industries........................................................................... 6 2.1.1 External factors ......................................................................................................... 6 2.1.2 Internal factors......................................................................................................... 11 2.2 Strategies for alternative automotive fuel industry........................................... 13
3. Methodology .................................................................................................................... 15
3.1 Exploratory study ................................................................................................. 15
3.2 Choice of methodology......................................................................................... 15
3.3 Choice of research framing.................................................................................. 16
3.4 Data Collection......................................................................................................17
3. 4.1 Primary data ........................................................................................................... 17 3. 4.2 Secondary data ....................................................................................................... 19 3.5 Reliability and Validity ........................................................................................ 20
3.5.1 Reliability ................................................................................................................ 20 3.5.2 Validity.................................................................................................................... 21
4. Empirical findings ........................................................................................................... 23
4.1 External factors..................................................................................................... 23
4.2 Perstorp BioProducts AB..................................................................................... 24
4.3 EcoPar AB ............................................................................................................. 25 4.4 Lantmännen Ecobränsle...................................................................................... 27
5. Analysis ............................................................................................................................ 29
5.1 Analysis of Perstorp BioProducts AB................................................................. 29 5.1.1 Analysis of external factors (PEST)........................................................................ 29 5.1.2 Resources ................................................................................................................ 30 5.1.3 Capabilities:............................................................................................................. 31 5.2 Analysis of EcoPar AB......................................................................................... 33
5.2.1 External analsis (PEST) .......................................................................................... 33 5.2.2 Resources ................................................................................................................ 34 5.2.3 Capabilities.............................................................................................................. 34 5.3 Analysis of Lantmännen Ecobränsle................................................................... 35 5.3.1 External analysis (PEST) ........................................................................................ 35 5.3.2 Resources ................................................................................................................ 36 5.3.3 Capabilities.............................................................................................................. 37
6. Discussion......................................................................................................................... 38
6.1 Conclusions............................................................................................................ 38 6.2 Managerial implications....................................................................................... 40
6.3 Theoretical implications....................................................................................... 42
6.4 Suggestion for further research........................................................................... 42 7. List of references ............................................................................................................. 44
8. Appendix 1 semi structured interview guide ................................................................ 47
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1. Introduction
In first chapter background to the study will be presented, followed by problem discussion,
purpose and the research question.
1.1 Background
The concept of bio or vegetable fuel is not new, even Rudolf Diesel designed his engine by
keeping vegetable oils in mind, but the vast resources of mineral oil make the world think
otherwise. With the passage of time certain factors i.e. increase in demand and cost of fossil
fuels with increase in world population and usage, shrinking resources, issues like energy
security of countries, political instability in Middle East and environmental concerns about
carbon emissions and global warming have led people to re-think about cleaner energy
resources.
To sum up the world is looking for sustainable solutions to its energy needs. The term global
sustainability is defined as “the ability to meet the needs of the present without compromising
the ability of future generations to meet their needs and sustainable development as a process
of achieving human development in an inclusive, connected, equitable, prudent, and secure
manner” (Hart and Milstein, 2003, p. 56).
At the moment biofuel is one of the solutions; efforts have been made by different countries
to use biofuels as an alternate to fossil fuels especially Brazil, USA, Canada and European
Union. World’s production of ethanol has become more than double during 2000-2005
according to the World Watch Institute Summary June 2006. Production of world bio diesel
has also increased manifold during the period 2000-2005 from less than 1000 million litres to
nearly 3600 million litres (Biofuels for Transportation, 2006).
Researchers also claim that if the world economy shifts towards an ecological orientation, it
will change the competitive landscape of industries in terms of consumer preferences and
demands, industrial regulations, and competitive opportunities (Shrivastava, 1995, p. 184).
The European parliament has passed a resolution on 17th December 2008 for the promotion
of renewable energy stating;
“The renewable energy roadmap demonstrated that a 20% target for the overall share of
energy from renewable sources and a 10% target for renewable energy in transport would be
appropriate as achievable objectives, and that a framework that includes mandatory targets
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should provide the business community with the long term stability it need to make rational,
sustainable investments in the renewable energy sector which are capable of reducing
dependence on imported fossil fuels and boosting the use of new energy technologies”
(Energy from renewable sources, 2008, p. 13).
From a Swedish point of view, the Swedish government has set more ambitious goals than
any other country. According to the national climate policy 2009, the government’s goal is to
have a vehicle fleet independent of fossil fuels by 2030 (Climate and energy policy,
2009).These legislations and growing public awareness on climatic issues have boosted the
emergence of a rapid growing Swedish alternative automotive fuel industry. Industry provides
sustainable fuel solutions, however as the industry is new thus little can be predicted about its
future growth patterns with the help of old literature.
1.2 Problem discussion
A lot of research has been undertaken to identify and describe the factors that affect the
creation and growth of an emerging industry. Porter (1980, p. 216) described different factors
which may affect an industry during emerging phase. The different factors include (1)
Technological Uncertainty, (2) Strategic Uncertainty, (3) High Initial Costs, But Steep Cost
Reduction, (4) Embryonic Companies and Spin-Offs, (5)First Time Buyers, (6) Short Time
Horizon, (7) Subsidy. Researchers are also of the view that growth of an industry is
influenced by technology push or market pull or both. A “technology push” describes a
situation where an emerging technology or a new combination of existing technologies
provides the driving force for an innovative product and problem solution in the market place.
( Herstatt and Lettl, 2000, p. 2)
A market pull perspective implies that the product or process innovation has its origin in
latent, unsatisfied customer needs in the market place. The identification of these needs occur
at first and is then followed by the required development activities. (Chidamber and Kon,
1994 cited in Hestatt and Lettl, 2000, p. 2)
In a study conducted for wind power, Russo (2003, p. 239) states that industries may require
institutional support during their emergence phase. This study is aimed to explore whether all
these generalizations hold true for sustainable industries or do we have other factors that
affect the growth of sustainable industries.
Until now little has been written about the factors that affect the growth of a sustainable
industry during its emerging phase. A sustainable industry is defined by Russo (2003, p. 318)
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as an industry that follows a trajectory towards sustainability, where a trajectory towards
sustainability means to provide alternate to existing products with considerably less natural
resource depletion i.e. wind power industry can be termed as a sustainable industry, as it
replaces conventional thermal power plants with considerably less environmental damage.
Researchers also claim that sustainable industries often appear as a response to market
opportunities (Russo, 2003 p. 319). In this study authors would like to see what creates these
market opportunities. Russo (2003, p. 318) further states that organizations within sustainable
industries are mission driven, where the term mission driven includes not only economic
sustainability within its character, but also environmentally and socially oriented goals.
Thus alternative automotive fuel industry can be treated as a sustainable industry as it
provides automotive fuel comparatively cleaner than traditional fossil fuels, thus creating less
pollution to the environment and society. Companies within this industry are not only under
threat from new and better alternative fuels but also have to compete with fossil fuels and
other existing alternate fuels. “Green” business concepts having their strength in
environmental issues are quite new and management studies do not offer a specialized growth
framework for such industries. According to Russo (2003, p. 319) emergence and growth of
sustainable industries is a research platform whose potential is largely untapped.
Hart (1995, p. 988) claims that given the growing magnitude of ecological problems,
omission of natural environment has rendered existing theory inadequate as a basis for
identifying important emerging sources of competitive advantage. Thus studies must include
an environmental perspective to understand the potential of an industry.
Alternative automotive fuel industry has its foundations in environmental issues and is backed
by supportive government policies. However it has to face competition from both
conventional and new emerging technologies. Abernathy and Utterback (1975) claim that a
firm in such uncertain business environment, should maximize its flexibility. Here in this
study the authors would like to see the variations of ways to maximize the flexibility of these
firms. Furthermore theories about the resource based view of the firm (Barney, 1991; Green
& Brown, 1997; Collis and Montgomery, 1995) offer generalized approaches for resource
building processes to gain sustainable growth of an industry, further research is needed for
“how to build and use resources by keeping in view bio-physical constraints for fuel industry”
(Hart, 1995 p. 989).
Research question: What are the factors that affect the growth of alternative automotive fuel
industry and up to what extent?
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Purpose of the research: The purpose of this research work in a broader sense is to describe
the important factors that affect the growth of alternate automotive fuel industries by studying
the industry with the help of multiple case studies of the alternate automotive fuel companies.
This would allow us to look upon the advantages these companies carry and problems they
face and the underlying factors. Exploration of such important factors would help us to
suggest strategies for sustainable growth of these companies.
1.3 Definitions
In order to avoid any kind of ambiguities for the readers, key terms used in this dissertation
are defined as:
Environment: The concept of environment is used in this study for the natural (bio- and
physical) environment.
Sustainable growth: In the simplest form sustainable growth is defined as the growth
(economic) that lasts (Pearce, 1996, p. 8). Thus a sustained competitive advantage can be
defined as an advantage that lasts.
Sustainable development: It is defined as the development that meets the needs of the present
without compromising the ability of future generations to meet their needs (World
Commission on Environment and Development, 1987, p. 8).
Sustainable industry: Defining a sustainable industry is a difficult task because according to
above mentioned definition of sustainable development, for a firm to be truly sustainable, it
must not alter or deplete natural resources in any way. All industries no matter how
environment friendly they are alter natural environment in some way. For example wind
energy does not deplete wind resource, but production of wind turbines do consume natural
resources i.e. iron, steel etc. likewise alternative automotive fuels produced from vegetable
oils are renewable in nature, but their transportation to production facility and production
process itself is not renewable in nature. In order to solve this problem Russo, (2003, p. 318)
argues that trajectory towards sustainability is a key defining characteristic of a sustainable
industry. Trajectory towards sustainability means “to decrease the environmental impacts
considerably” (ibid. p.318). By this definition alternate automotive fuel industry qualifies for
the term “sustainable industry” as it creates comparatively less environmental pollution as
compared with fossil fuels. Second defining characteristic described by Russo, (2003, p. 318)
is that organizations within a sustainable industry are mission driven. The term mission driven
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means that in addition to economic goals the organization has some environmentally and
socially oriented goals.
1.4 Limitations
This study does have some limitations. These include that all the companies that took part in
this research are all Swedish alternate diesel engine oil producing companies. These
companies were selected as these can easily be contacted and interviewed. This may have
limited the effects of findings and results of this study to this particular industry and country
to some extent, but hopefully it would also provide some generalized findings. Other
limitations of this study lies in PEST analysis, the “social factor” is present in our analysis
however no first hand data is collected to analyze this factor. However interviews with
company officials, government websites and published articles provide useful information
about social factor, this is perhaps the reason that social factor could not be deeply analyzed in
this study. No primary data is available also for political factor; however we think that official
Swedish website provides useful information about environmental regulations and protection,
future plans of the government and tax policies etc. it help us a great deal to describe this
factor.
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2. Theoretical Framework
The theoretical frame work is based upon theories relevant to our research topic and the
factors are broadly categorized into external and internal factors.
2.1 Growth of sustainable industries
In the theoretical framework part, factors are first divided broadly into external factors
“outside factors affecting the firm growth” and factors internal to the firm. And then both
external and internal factors are explored. The study shall include both theories about
sustainable growth and competitive advantage for a broader overview and also management
literature specialized for green or sustainable industries.
Depletion of natural resources, industrial effects on environment and public awareness about
it, has forced management researchers to include natural environment or biophysical
perspectives in predicting fate of industries. Hart, (1995, p. 991) claims that businesses and
markets will be constrained by and dependent upon ecosystems (nature) in the future. This
argument is supported by Shrivastava (1995, p.184) who claims that in order for global
economy to become ecologically sustainable, it will be necessary to organize business and
industry along ecologically sound principles.
These arguments imply that firms will have to shift towards more environment friendly
“sustainable” products in order to get a competitive advantage.
2.1.1 External factors
External factors are the factors about those firms can do a little about. However industries can
use these factors for their well-being i.e. by acting in accordance with them, for example,
developing their business in line with the political motivation. External factors affecting a
firm vary to a number of factors.
In the words of Epstein & Roy (2001, p. 590) companies in different industries are exposed to
widely different pressures from political institutions, costumers and community activists.
Morden (2007, p.99) claims that strategic decision-making process depends upon prevailing
technological conditions and on the rate of change of technology. These various pressures
become important external drivers of corporate sustainability.
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� Analysis of external factors (PEST Analysis)
As external factors play an important role in growth of any industry, these external factors
constitute an important part of this research work. Many methods have been devised for
analysis of external factors like Porter’s five forces model. This model includes factors like,
potential entrants, suppliers, buyers, rivalry among existing firms and substitutes (Porter,
1980, p. 4). This model is well suited for a firm to analyze its external environment like,
suppliers, buyers, and substitutes etc. However this model is not as suitable to scan the outside
environment on the level of an industry as the industry is influenced and affected by factors
on a higher and general level. In this study our aim is to identify and describe factors that
affect the whole industry. PEST analysis provides a broad picture of the whole scenario with
simplicity and is widely used for viewing external context of strategic decisions. The acronym
PEST stands for political, economic, social and technological factors. Ward and Rivani (2005,
p. 11) are of the view that these factors cannot be manipulated or changed by the company.
The only thing that a firm can do is to assess the factors and possibly prevent or react to them
in the most appropriate way. Thus a PEST analysis provides a satellite view of an industry.
This model is based upon the assumption that certain external and indirect circumstances that
characterize an industry are able to influence capacity of firms within that industry to produce
value (Ward and Rivani, 2005, p. 11).
PEST analysis is selected in this study rather than Porter’s five forces model or any other tool
because the alternative automotive fuel industry is influenced by the political motivation,
environmental and social concerns and is based upon technological innovations as discussed
in introduction and problem discussion sections in chapter 1. Thus PEST analysis provides
authors with an appropriate tool to analyze these factors.
� Political
Political factor may include environmental regulations and protection, tax policies, consumer
protection, political stability and safety regulations (Ward and Rivani, 2005, p. 11). Here in
our case Swedish government has proposed an integrated climate and energy policy in 2009
for the period up to year 2020. According to this policy, Sweden will have a vehicle fleet
independent of fossil fuels by 2030. For accomplishment of this purpose an action plan has
been proposed. According to this action plan a price shall be put on green house gas
emissions, beneficial conditions will be created for cars with a low environmental impact
8
running on alternative fuels, which will encourage a different choice of fuel. Also initiatives
will be taken on new alternative fuel technologies such as plug-in hybrids and electric
vehicles (Climate and energy policy, 2009). Porter (1980, p. 219) also claims that emerging
industries with radical new technology or those that address a social concern may be
subsidized. Subsidies can be awarded directly to firms in the form of grants, or they can
operate indirectly through tax incentives, subsidizing buyers, and so on. However subsidies
often add a great degree of instability to an industry, as they make the industry dependent on
political decisions that can be quickly reversed or modified if changes in the political
landscape occur.
In a study conducted for wind power, Russo (2003, p. 239) states that alternative energy
industries require institutional support during their emergence phase. Thus political
motivation becomes an important factor for growth of alternative automotive fuel industry.
� Economical
According to Ward and Rivani (2005, p. 11) the economic factor normally includes economic
growth, interest rates and monetary policies, government spending, unemployment policy,
taxation, exchange rates, inflation rates, stage of the business cycle and consumer confidence.
In case of our study many of the above mentioned factors are not taken into consideration like
unemployment policy, exchange rates and inflation rates etc. exchange rates are not taken into
consideration as raw material of all the companies who participated in this research is either
produced in Sweden or purchased from Sweden. More over companies have not yet started to
export their products so exchange rates are not taken into consideration. Likewise
unemployment policy and inflation rates have also little to do with the business of these
companies.
Russo, (2003, p. 318) states that organizations within sustainable industries are mission
driven. As used here, the term mission-driven means that the organization includes not only
economic sustainability within its character, but also environmentally and socially oriented
goals. From here it can be seen that different factors that affect a sustainable industry are
interrelated. And economic sustainability of a firm is dependent upon ecological and social
factors. I.e. the fuels are subsidized by the government only if they fulfill the environmental
and socially oriented goals. In other words sustainable companies are not ready to sacrifice
environmental and social goals for economic sustainability, or in case if they do so they do
not remain sustainable companies by definition.
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Researchers also claim that if the world economy shifts towards an ecological orientation, it
will change the competitive landscape of industries in terms of consumer preferences and
demands, industrial regulations, and competitive opportunities (Shrivastava, 1995, p. 184).
� Social
Porter claims that product demand is affected by changes in lifestyles, tastes, philosophies and
social conditions which any society tends to experience over time (Porter, 1980, p.165).
Epstein and Roy (2001, p. 590) argue that companies must identify particular social and
environmental issues associated with specific industries and locations. These elements can be
powerful external drivers. Issues associated with automotive fuel industry are environmental
degradation, and depletion of fossil fuel resources. Thus companies those manage to exploit
these issues by producing environment friendly and renewable fuels are likely to gain social
attention.
A study conducted by Shrivastava (1995, p. 184) concludes that a majority of people are
willing to sacrifice some economic growth for environmental protection. Besides these there
are other social issues like consumer behavior, as industry is new, consumer usage patterns
are also unknown. “One of the most confusing aspects of emerging technologies is that
consumer usage patterns and behavior are exploratory and formative, while solid market
knowledge is non-existent and the structure of competition is embryonic” (Day &
Schoemaker, 2000, p. 10).
In this case, the industry is emerging but consumer need is previously fulfilled by fossil fuels
thus consumer usage patterns and behavior are known to an extent. In the present study the
authors would try to find that how product should be developed so that consumer is least
disturbed in switching from fossil fuels to alternative fuels. As consumer “social” is an
important factor that affects this industry.
� Technical
According to Ward and Rivani (2005, p. 11) Technical factor normally includes government
research spending, industry focus on technological effort, new inventions and development,
rate of technology transfer, life cycle and speed of technological obsolescence etc. technical
factor plays an important role in the growth of sustainable industries. Some researchers claim
that one of the ways to improve sustainability performance is to invest in new technologies,
product or process redesign, or R&D spending (Epstein & Roy, 2001, p. 592). Shrivastava,
10
(1995, p. 185) claims that companies have to upgrade their technologies when new or higher
environmental standards are introduced.
Firms can get more and more closer to universal definition of sustainability that is meeting the
needs of the present without compromising the ability of future generations to meet their
needs (World Commission on Environment and Development, 1987, p.8) with the help of
new, more efficient technologies i.e. technologies that produce less pollutant fuel, use
comparatively less resources etc.
If companies are already ahead of environmental regulations it provide them with competitive
advantage, enable them to create new product markets, alter consumer demand in existing
markets and gain social legitimacy (Shrivastava, 1995, p. 198). Thus environmental
technologies help companies to gain economic and social or in short sustainability goals.
Another way of looking into the topic is through “technological uncertainty”. Technically a
number of alternative fuels are available and companies work with different alternate
solutions. Dasgupta & Stiglitz (1980, p. 26) claim that in an uncertain business environment,
companies that work with different technologies enter a single market. Also in such uncertain
environments R&D budget of the companies is always higher.
During emerging and early growth phases industries often lack a standardization of products.
Firms decide themselves whether they want to standardize their products or differentiate it
from their rivals. If all firms are willing to offer compatible products, standards are likely to
emerge fairly easily (Besen and Farrell, 1994, p.129).
However a dominant firm may choose to remain incompatible with a rival because it will
suffer a substantial decline in market share if it becomes compatible, since that would increase
the value to consumers of its rival’s product (Farrell and Garth 1985, p.73).
Or in case if rival firms do not agree upon one standard then development of a standard can be
shifted towards a neutral third party (Besen and Farrell, 1994, p.126).
Researchers are of the view that agreeing on a standard may eliminate competition between
technologies, but it does not eliminate competition altogether. Instead, it channel it into
different and (to economists) more conventional dimensions, such as price, service, and
product features. As competition to become the standard may also delay market growth by
encouraging buyers to wait to see what the standard will be (Besen and Farrell, 1994, p.119)
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2.1.2 Internal factors
Some researchers believe that firms need both resource capital and institutional capital for
longer-run competitive advantage (Oliver, 1997, p. 710). Thus internal factors affecting firm
growth constitute an important part of this study. Oliver (1997, p. 709) defined resource
capital as the value enhancing assets and competencies of the firm, and the key success factor
in context of resource capital is the protection and procurement of rare inimitable assets and
competencies. Examples of resource capital include superior distribution channels, lean cost
structures, and patented core competencies etc. Oliver defined institutional capital as the
firm’s capability to support value-enhancing assets and competencies. Examples of
institutional capital may include training programs to build new capabilities within the firm’s
operations, information technology systems that accelerate the diffusion and use of resource
capital and management development programs that promote continuous resource
improvement etc. In the words of Oliver (1997, p.709) both resource and institutional capital
are collectively a source of competitive advantage.
As this research is proposed to study the factors affecting the growth of sustainable industries,
thus the natural environment becomes a core subject of this study. In the words of Hart, one of
the most important drivers of new resource and capability development for firms will be the
constraints and challenges posed by the natural (biophysical) environment (Hart, 1995, p.
989).
� The firm’s resources
According to Daft a firm’s resources include all assets, capabilities, organizational processes,
firm attributes, information, knowledge, etc. controlled by a firm to conceive of and
implement strategies that improve its efficiency and effectiveness (Daft, 1983 cited in Barney,
1991 p. 101).
Barney claims that a company should exploit its strengths and reduces the external and
internal threats. He presented four indicators for sustainable competitive advantage, these are,
a firm’s resources must be valuable, rare, imperfectly imitable and non-substitutable (Barney,
1991 p. 105-106). This was later on complimented by Hart; “Resource based theory takes the
perspective that valuable, costly to copy firm resources and capabilities provide the key
sources of sustainable competitive advantage” (Hart, 1995 p. 986).
Oliver (1997, p. 699) claims that one of the drivers of sustainable competitive advantage is
selective resource accumulation and deployment. And an environmental perspective must be
12
taken into account when a selection of resources is made. Hart (1995, p. 991) claims that in
this era of environmental awareness, environmental factors must be considered when
resources of a firm are developed, Where environmental factor means to build such resources
which deplete the environment in least possible ways i.e. renewable resources.
Environmental technologies have become a potential strategic resource because they affect
the value chain at multiple points. They are capable of providing firms with unique and
inimitable advantages at each stage of the value chain (Shrivastava, 1995 p. 190). And in case
when a number of alternatives are present a firm subject to uncertainty should try to achieve
the ability to survive in the widest possible range of environments. That is, the firm should
maximize its flexibility (Abernathy & Utterback, 1975 cited in Karnani & Wernerfelt p. 188).
According to Sanchez (1995, p.139) resource flexibility is greater when there is a larger range
of alternative uses to which a resource can be applied, costs and difficulties of switching from
one use of a resource to an alternative use are lower or time required to switch to an
alternative resource use is lower
To sum up it can be said that for growth of an organization within a sustainable industry, a
firm’s resources must be valuable, rare, imperfectly imitable, and non-substitutable, should be
carefully selected by managers with consideration of environmental perspectives, and should
be flexible in nature.
� The firm’s capabilities
Intangible resources contribute towards the capabilities of a firm, and Hall (1993, p. 611)
states that each capability is a result of one or more intangible assets. Intangible resources of a
firm may include; patents, trademarks, trade secrets, contracts and licenses, data bases,
information in the public domain, personal and organizational networks, the know-how of
employees, suppliers and distributors, the reputation of products and company and culture of
the organization (Hall, 1993, p. 607).
A firm’s capabilities are the capacity to use the resources effectively and efficiently to achieve
the desired end (Ashari, 2003, p. 2). Research has been undertaken on a firm’s resources and
capabilities from different viewpoints. Normally one viewpoint is the identification and
exploration of resources and capabilities those can lead to a competitive advantage. Another
view point is to describe the relationship between a firm’s capabilities and its performance
(Helft, 2000, p. 955). This is however beyond the scope of our research. In our study we are
only interested to compare the capabilities of different firms included in this study and to
13
analyze how these capabilities affect the growth of these firms. Hall (1993, p. 610) divided a
firm’s capabilities into four major types of capabilities:
• Regulatory capability: Results from the possession of legal entities i.e. intellectual
property rights, contracts, trade secrets etc.
• Positional capabilities: Positional capability is a consequence of past actions which,
for example have produced a certain reputation with costumers.
• Functional capability: It relates to the ability to do specific things; it results from the
knowledge, skill and experience of employees, and others in the value chain such as
suppliers, distributors, stockbrokers, lawyers etc.
• Cultural capability: Cultural capabilities apply to the organization as a whole. It
incorporates the habits, attitudes, beliefs and values, which permeate the individuals
and groups which comprise the organization.
Hart (1995, p. 991) claims that In the future, it is likely that strategy and competitive
advantage will be rooted in capabilities that facilitate ecologically sustainable economic
activity.
Coyne (1986, p.54) also generalizes the sources of capability differentials into above
mentioned four types: functional differential, positional differential, cultural differential, and
regulatory differential. So we shall also distinguish capabilities of the firms in above
mentioned types.
2.2 Strategies for alternative automotive fuel industry
The Authors of this study are of the view that identification and description of important
factors that affect the growth of alternative automotive fuel industry would help them to
advice in strategy development for growth of sustainable companies. The literature for
strategy formulation process is taken into consideration.
Porter states that the best strategy for a given firm is ultimately a unique construction
reflecting its particular circumstances (Porter, 1980, p. 34). He does, however, describe three
broadly defined generic strategies.
a) Overall cost leadership: in simple terms, it means to offer products at low costs as
compared to competitors. In order to achieve cost leadership it requires tight financial
control, cost minimizations in areas like R&D, service, sales force and advertising etc.
(Porter, 1980, p. 35).
14
b) Differentiation: it means creating something that is perceived industry wide as unique.
Differentiation can be built in many ways; like design or brand image, customer
service and dealer network etc. differentiation help companies building customer
loyalty, which may result in lower sensitivity of consumers to product price. (Porter,
1980 p. 37-38).
c) Focus: this strategy means to focus on a particular buyer, group, segment of the
product line, or geographic market and serving their needs very well. This may allow
companies to serve its narrow strategic targets more effectively and efficiently than
competitors who are competing more broadly (Porter, 1980 p. 38).
Karnani & Wernerfelt (1987 p.187) suggests that the first step to analyze competitive strategy
of a firm is to understand the sources of uncertainty it faces and some key characteristics of
the uncertainty. According to their study four major kinds of uncertainties are;
• Demand & Supply uncertainty
• Uncertainty about the best process technology
• Competitive uncertainty
• Externalities i.e. government intervention, social pressures.
To gain competitive advantage careful selection and implementation of strategies are
required. As competitive advantage is the outcome of discretionary rational managerial
choices (Oliver, 1997, p. 699). Managers must formulate a sustainability strategy that includes
the company’s values, commitment, and goals (Epstein & Roy, 2001 p. 591).
Some researchers also believe that smart companies seize competitive advantage through
strategic management of environmental challenges (Esty & Winston, 2006 p.3).
One school of thought believe that environmental technologies provide a useful framework
for formulating and implementing strategies, particularly in natural resource based and
environmentally sensitive industries (Shrivastava, 1995, p. 197).
15
3. Methodology
An effective and appropriate research methodology is an essential part of each research work.
It is vital for the proper pursuance of the proposed task and important role in performing the
research work effectively and efficiently. A detailed description of our research methodology
is explained below.
3.1 Exploratory study
According to Emory and Cooper (1991, p. 119) a study can be viewed as exploratory or
formal. The vital difference between these two is the degree of structure and the immediate
objective of the research. The purpose of an exploratory study is to build up a question or
hypothesis. The formal study, on the other hand, starts off where the exploration ends; it
begins with hypothesis or question and involves precise procedure and data source
specification.
Exploration is particularly useful when the researcher lacks a clear idea of the problem. It
provides researcher with ample information related to underlying problem and helps to
elaborate the problem. The basic motive of our thesis is not only to gain the knowledge about
the topic but also to describe the factors those affect the sustainable growth of alternate
automotive fuel industry Therefore our research question in not based on hypothesis that we
intend to test. This study is exploratory and inductive in its nature because it is fundamental
research at the initial stage and problem area of the topic needs to be elaborated. Further
inductive research is suitable as researcher can draw the conclusion on the bases of the
observation that they enhanced.
3.2 Choice of methodology
A study can be undertaken by using qualitative or quantitative method but there is a
contradiction among researchers about an appropriate method because both methods are
entirely different. Qualitative research is appreciated for its flexibility; on the contrary
quantitative research is characterized by structure. Thus the focus in qualitative research is on
detailed and in-depth analysis of the problem by taking help from the theories presented by
the previous researcher in the same field. Whereas in quantitative method, the research
technique is to collect data from a larger population and make analysis to arrive at the final
results from the sample size of that population. Here the researcher gets results in numbers
that can be elaborated to a large population as well (Bryman and Bell, 2007, p. 402).
16
We selected a qualitative methodology in this study because the purpose of our study is to
describe the factors affecting the sustainable growth rather than to test or prove something.
We want to come out with some suggestions for the growth and development of alternative
automotive fuel industry, so a qualitative approach is used to give a deep insight into the
subject area. According to Bryman and Bell (2007, p. 475) this methodology is useful because
it helps the researcher to focus on the attitude, values, norms and perceptions of the
respondents that how different respondents would describe a certain phenomenon and how
each one of them differ in their views. Thus by adopting this strategy, it will help us to get
ample information related to the topic from different points of view.
3.3 Choice of research framing
A research design is a plan and structure of the organization adopted in order to obtain an
answer to the research question. According to Emory and Cooper (1991, p. 114) sensibly
adopted research framing is supportive for arriving at good and relevant empirical findings in
research because it generates a relationship between research question and purpose of study.
The research framing used in this research is inclusive of case studies of three different
alternate automotive fuel companies, a multiple case study method provides us with a useful
tool to explore our research topic. As the research is exploratory in nature, a number of
different cases provide authors with an insight in to the functioning of different companies,
and the ability to compare their resources, capabilities and how different factors affect their
growth.
Selection of companies
In order to pursue qualitative research, especially in the form of a case study, the choice of
respondents is more important than the number of respondents whereas the number of
respondents is more important in quantitative research (Bryman and Bell, 2007, p 485).
The companies selected in this study are all alternate automotive fuel companies. We selected
these companies with great care as these companies fall in the same industrial segment and
research could provide fruitful analysis and conclusions. All these companies provide less
toxic fuels compared to conventional fossil fuels for diesel engines; two of these companies
want to be largest Swedish companies for alternative diesel fuel. Other companies were also
contacted for this study but did not take interest in this study. One of these companies
(SEKAB) was going through a transitional period and no representative from the company
17
was available to participate in this research. And for some other companies, company officials
were too busy to take part in this research. The deficiency of few cases was tried to be
countered by conducting a number of interviews with company representatives to gather as
much information and points of view as possible.
3.4 Data Collection
For the purpose of data collection authors rely on primary and secondary data. These sources
provide knowledge to draw a reliable analysis. The use of data sources depends upon nature
of the task yet the majority of the researchers emphasize upon a hybrid approach using both
primary and secondary data in their research (Emory and Cooper, 1991, p. 140). We used both
sources of data collection for the purpose of doing research. These sources provide an
effective solution to the underlying problem for which research has been undertaken.
3. 4.1 Primary data
Primary data can be gathered with the help of survey technique. Survey means to question
people and record their feedback for making analysis to our research task. According to the
(Emroy and Cooper 1991, p. 271) the survey can be conducted in three different ways;
personal interviews; telephone interview; self-administered questionnaire/mail survey.
A personal interview (i.e. face to face) is a two way conversation initiated by the interviewer
to obtain data. The telephone interview can be beneficial in setting up personal interviews and
screening a large population. Mail survey is beneficial when the target person is hard to
contact over telephone. I.e. when respondents are on official tours, or when respondent and
researcher cannot understand each other well over telephone as both parties were not native
English speakers in case of this study.
In the light of the above definition and according to our research requirements, we examined
different case studies. For the purpose of data collection, we conducted telephone interviews
with our selected respondents and used a self-administered questionnaire/mail survey. These
techniques are used to get insight of the problem and to obtain the proposed solution given by
the each respondent.
For this purpose, we contacted more than one official from each company. Questions were
divided into three parts. Research and marketing related questions were presented for R&D
managers and marketing managers respectively. While higher officials i.e. chairman of the
board and Managing directors were contacted for strategy related questions. We always tried
to have telephone interview with interviewees but in the case if some interviewee was not
18
available for a telephone interview, semi structured e-mail questionnaires were sent to them
and a follow-up questionnaire was also sent if authors felt there was some deficiency in the
information gathered. Authors could manage three telephone interviews, while six e-mail
questionnaire interviews were successfully carried out.
The authors relied on telephone interviews and questionnaire technique due to shortage of
time and financial resources though it is not as effective as face to face communications. As
authors were unable to capture the gestures and emotions of the interviewee hence they were
unable to observe the degree of correctness and accuracy of the statements. But still it is
reliable under available circumstances (Emory and Cooper, 1991, p. 289)
An interview guide was used in order to ask questions in line with research area, questions
were based upon available information and gap in it as studied from previous research and
relevant theories included in literature review part. During data collection respondents were
first taken in confidence by briefing them about research topic. They were given freedom and
flexibility to answer in their own words during the interviews. Further, there was a follow up
questions session from respondents to ask about any further or missing information.
In this research, the authors undertook three telephone interviews, first from the R&D
manager, second from the chairman of board from EcoPar and third from the marketing
manager of EcoBränsle. The respondents were asked questions related to their job
responsibilities.
All interviews lasted about 40 minutes and during the time spent on interview authors tried to
use the time effectively and efficiently. Thus leaving no stone unturned to get ample
information related to job category of interviewee and this research work, both interviews
were recorded using a recording device to ensure creditability (Bryman and Bell 2007, p.
472).
19
Table of interviews:
Interviews conducted by different modes Via Telephone Via Email Companies CEO
Marketing Manager
R & D Manager CEO Marketing Manager
R & D Manager
Total No. of Interview
Perstorp BioProducts AB
0 0 0 1 1 1 3
EcoPar AB 1 0 1 0 1 0 3
Lantmännen Ecobränsle 0 1 0 1 0 1 3
Grand Total of Interviews
09
3. 4.2 Secondary data
Secondary data can be obtained from different sources like internet, government websites,
NGO’S, official websites, journals, annual report of the companies and many other sources
(Ghauri, Gronhaug and Kristianslund 1995, p. 91). It can be seen as a published form of
previous research undertaken in the given field. It provides us with sufficient information to
conduct this research in an effective and efficient manner. The use of secondary data is quite
helpful in understanding and exploring underlying area of research.
The advantage of secondary data provides saving of expensive resources and provides better
knowledge to researcher to formulate the question(s) and draw good solutions for the problem
(Ghauri, Gronhaug and Kristianslund, 1995, p. 95). Furthermore the interview respondents
often refer to their websites for answer of some questions, these websites also helped authors
to formulate their questions for interviews. Secondary data proved helpful for outside analysis
of industry conducted through PEST analysis.
The PEST analysis is carried out to explore the overall environment of industry, both primary
and secondary data proved helpful to carry out the PEST analysis. The data for PEST analysis
is collected through scientific articles, journals, newspapers, government press releases and
official websites of concerned departments i.e. energy and environment departments in
Sweden. Furthermore the secondary data regarding the companies has been collected through
company websites and annual reports. However interviews conducted with the company
20
officials also provide information about political, economic, social and technical aspects of
this study.
3.5 Reliability and Validity
The reliability and validity analysis provides knowledge to the researcher whether the
obtained qualitative data meet the research problem. It is the quality of a good research work
that results are derived correctly and are consistent over time.
3.5.1 Reliability
The reliability of a research refers to the extent to which results are persistent and can be
reproduced in the future time period. Hence when similar methodology is undertaken same
results are ought to be obtained.
In order to ensure the reliability, different steps were taken to eradicate the errors and to
reduce the chances of biasness to minimum level. We collected primary data by two methods,
semi structured telephone interviews and email questionnaire. In semi structured telephone
interview method, all the interviews were recorded by using recording device ensuring that no
details are missed and that the discussion can continue without any interruptions also to
minimize the chances of mistakes and misinterpretation, respondents were well informed in
advance about the research topic through email. This interview recording and informing in
advance technique helped authors to collect useful data that is reliable and trustworthy. Email
questionnaire were also conducted to collect data from the sample company’s responsible
officials. In order to ensure reliability of data, questions were asked from each respondent
according to his duties and personal experience about the research task.
In this study, telephone interviews were conducted with the help of an interview guide just to
avoid error and to ensure the factor of reliability of the gathered data. Interview guide was
designed according to theories presented in literature review part to gather efficient
information from the concerned respondents (Bryman and Bell, 2007, p. 485). There is a risk
that interviewing the respondents may be affected due to the attitude of the interviewer. Such
implications reduce the factor of reliability of the research work. In order to avoid such
ambiguity it is suggested that same person should conduct interviews for research with all
interviewees. Authors acted upon this during data collection from the interviewees.
Interviews were conducted over telephone to reduce the risk of affecting the interviewee
which is normally expected with face to face interview.
21
There is a great risk involved owing to biasness and misunderstanding while transferring
results into written format. In order to get rid of such biasness and to get accurate results, the
respondents were given opportunity to proof read the whole written format. It is also
suggested by (Bryman and Bell, 2007, p. 483) that it is vital to inform the interviewee about
the content of the interview. So that he may not be surprised on questions. Hence undertaking
Bell’s suggestion, authors informed interviewees about area of research and content of
interview in advance and in most cases it increased the interest of interviewees in this study.
3.5.2 Validity
Validity is a research criteria which assure reliability of the results produced through the
findings made in the research. It also finds out the degree of trustfulness of the findings and
how these findings mirror the reality. Validity can be divided into internal, external and
construct validity. Internal validity is a kind of validity “which means whether or not there is a
good match between researchers’ observations and theoretical ideas they develop” (Bryman
and Bell, 2007, p. 410). This means that internal validity ensures that authors tried to
established relationship between those factors (internal and external) which leads to problem
formulation. Thus data gathered was confirmed with the theoretical framework of the research
to ensure the internal validity.
On the other hand external validity assures that empirical findings can hold true across actual
settings and time and generalization of findings is an element of the external validity.
This research aims to picture the present stage of the subject. Current findings and opinions of
the researchers on this subject is included in the theoretical framework of the present study.
But future research on this subject may include such findings that have a negative effect on
the external validity of the theoretical framework. Because by including new findings and
opinions analysis would produce different results
Further qualitative interview technique adopt for the purpose of the validity because alternate
automotive fuel business is relatively new so there was no effective method to have valid data
expect to interview the people active in the field. For this purpose, we have contacted people
involved within the subject area of our thesis finding. Sources of primary data for this
research work are people involved in research and development, marketing, production and
higher management positions. At first questions were divided in to three parts and then all
these officials were interviewed for questions relevant to their job position. These officials
were contacted because all chosen job positions are supposed to have relevant knowledge and
22
information about different aspects of the research problem related to that particular job
position.
Besides this in case of any ambiguity and to avoid the chances of miss interpretation, authors
were free to contact the respondents again for further information. For this purpose follow-up
questionnaires were sent to the respondents which proved really helpful to get clear
information (Emory & Cooper, 1991, p. 283). This opportunity also increases degree of
validity of this research work and increase surety of accuracy of gathered data. This
opportunity increases degree of validity of this research work and also authenticates the
gathered data.
23
4. Empirical findings
In this section the empirical results on which this research rests will be presented.
4.1 External factors
Data for external factors is gathered from both primary and secondary sources. Official
government websites, newspapers, research articles, and official company websites have
served the purpose to a large extent. Meanwhile interviews conducted with company officials
have also provided useful information regarding different external factors.
Alternate automotive fuel Industry is heavily influenced by government legislations, in fact
Swedish government takes the lead worldwide towards a fossil free fuel environment,
According to a memorandum published by the Ministry of Enterprise, Energy and
Communications, and the Ministry of Environment on March 11th, 2009, Swedish government
has presented two government bills which constitute “An integrated climate and energy policy
for the period up to 2020” (Climate and energy policy, 2009). The government’s proposed
objectives are, that half of Sweden’s energy will come from renewable sources in 2020, and
the country will have a vehicle fleet that is independent of fossil fuels in 2030. There is a
target to reduce green house gas emissions by 40 percent by 2020. For this purpose the
government has put forward favorable policies and subsidies for renewable fuels.
The government plans to put a price on green house gas emissions along with beneficial
conditions for cars with a low environmental impact, running on alternative fuel, further more
initiatives will be taken on plug-in hybrids and electric vehicles. An official press statement
released on March 10th 2009 states that Green cars will be exempted from vehicle tax for five
years, while vehicle tax will be raised by SEK 5 per gram of carbon dioxide a car emits (
Global Agricultural Information Network Report, 2009)
All company officials believe that government, environmental and educational institutions
and media has played an important role to make people aware of environmental concerns
raised by fossil fuels. There is a general acceptance that alternative or biofuels are more
environment friendly than fossil fuels, however concerns have been raised as the usage of
alternative fuels have increased; there is an ongoing debate on the topic of “food or fuel” for
bio based fuels as the land and crops used for fuel production may pose a threat of food
shortage. While officials contacted from alternate Fuel companies believe that this issue is not
24
going to materialize until production reaches certain volumes “not going to happen in near
future” as they said, and are planning to position their business in non-food crops in forth
coming future through technological advancements. Company officials believe that most of
their problems would be solved by technological advancement in forth coming future.
4.2 Perstorp BioProducts AB
Data for Perstorp BioProducts AB is collected via interviews from company managers and
company’s official website which was often referred by the interviewees during the interview.
Company’s head office is situated in Perstorp, a municipality in the southern part of Sweden.
The company “Perstorp AB” was founded in 1881; the first products were charcoal, tar, wood
alcohol and acetic acid. The raw material used then was almost entirely biomass. The Perstorp
group is producing bio-based chemicals for more than 100 years, and until 1960s they were
making chemicals from wood based ethanol. Lately they shifted their business more on the
logistic side.
According to one of the respondents, rapid increase in fossil fuel prices, increased
environmental awareness among mass public, and favorable government policies lead
Perstorp to enter biofuel business once again in 2008. Biofuels have many co-products and by
products, which are useful chemical compounds. The company has the advantage to be in
chemicals business for such a long time to find places and applications for these chemicals.
The company has a fully devoted R&D department and also groups of researchers at many
sites. Thus the company has a strong R&D department and a skilled production team.
Perstorp has its own logistics department, which may prove a competence when a logistic
chain for a product is set up. Moreover, Perstorp is producing esters, similar to the Rape
methyl ester (RME) for 25 years, thus they have technological capabilities, experienced and
skilled manpower. For past many years production capacity has been increased in all sites
gradually, which may help out when demand grows.
Perstorp RME plant is situated in Stenungsund, on the Swedish west coast; it is Scandinavia’s
largest RME plant. The products are RME, which fulfills the Swedish standards having
stronger requirements than European standard (EN 14214). The European standard is a
general bio diesel standard for European countries.
25
The second product is “Verdis Polaris”, which is a fuel suitable for the cold Swedish winters
meanwhile it is renewable in nature as well. It’s a reliable fuel and works even on the coldest
day in the north of Sweden. The third product is a technical grade “Glycerine” which comes
out as a byproduct during the production of RME, technical application market is targeted for
this product as it does not fulfill standards of pharmaceutical or food industries. The company
has contracts with suppliers of raw materials to ensure the cheap and in time availability of
raw materials. The company disagree with the food crises theory as present utility of bio
diesel is much less than the installed capacity and sees a number of alternatives which can be
used to extract vegetable fuels like algae, jatropha oil gasification etcetera in future but for the
time being RME is good enough to cater all the needs.
The company is also producing glycerin, which adds flexibility to their products and is aiming
to launch a lot more products in future. An official from the company believes creativity is the
only limiting factor.
Perstorp BioProducts AB has key competencies including long term production experience of
similar products, experienced R&D and production department, diversified production line,
own logistic department, an easy access to distribution channels and an increased production
capacity. Furthermore the company’s fuel products are also subsidized by government as
these are renewable in nature.
4.3 EcoPar AB
Data for EcoPar AB is collected by conducting a number of interviews with company officials
and by studying their official website. EcoPar AB is situated in Gothenburg and was
developed by Hans Jansson and Andreas Eklund in 1998 with an intention to sell alternative
fuels. The company develops and sells synthetic fuels and heating oils, fuels for diesel and jet
engines. EcoPar’s fuel for diesel engines is used without any modifications to the ordinary
diesel engine, thus creating no problems for the costumers. EcoPar is unique in its technology
and provides clean and less toxic fuel solutions with lower emission rates of green house
gases and serves for better global environment. At present liquid fuels are produced from
natural gas and are specialized for certain sensitive environments and environmentally
concerned people. It means fuels are not renewable in nature and are not subject to subsidies.
EcoPar is the first company to sale an operational fuel from 100% natural gas. While heating
oils are produced from renewable feed stocks. The company has patented its technology and
claims to be up to 90% more environmental friendly compared to ordinary diesel engine fuels
26
and reduce carbon dioxide emissions from 40 to 50% comparatively. EcoPar fulfills European
standard for diesel fuel EN590 and U.S standard for diesel oil ASTM D975 and thus can be
used in all types of vehicles using diesel engines; it is also classified as premium diesel fuel
according to the U.S National conference of weights and measures. One important
achievement and intangible resource which company carries, is its product classification as
nonhazardous goods according to international air transport association (IATA) regulations.
EcoPar is also nontoxic to water organisms, and is therefore especially well-suited for use in
close to water protection areas, natural reserves and other sensitive wildlife areas. EcoPar has
its own well developed R&D department and is aware of fast technological changes and is
keeping an eye on it. It is located in vicinity of Chalmers University, which occasionally
participates in company’s research work. EcoPar has a good technical know-how about fuels,
their exhausts, production technology of fuels and engines and have a well-established sales
network. EcoPar is active within circles of environmental legislations, fuels and engine
standardizations. Company officials believe that diesel engines will be around in long term
future and are not threatened by new generation technologies i.e. hydrogen or vehicles run on
electricity. The government plays a major role in fuel industry in Sweden and fuel price
consists of up to 75 % taxes. The company officials are not happy with the government’s
current policy towards industry as taxes are raised more for their product (for 2009) as
compared to ordinary diesel oil although company fulfill government’s interest of a shift
towards a sustainable society by decreasing emissions of green house gases. EcoPar claims to
pay taxes more than any alternative fuel in Sweden. Thus their products are more expensive
than ordinary diesel oil and have not undergone any price war with it. EcoPar wishes to
increase its market by selling clean and environment friendly fuels.
Currently financing is a big issue for the company and they are working hard to find a
solution for it.
It does not take any modification at the part of consumers in their vehicle to use EcoPar,
market of EcoPar currently lies in costumers wanting cleaner, less smelling, less toxic, diesel
exhausts from their vehicle. The company currently faces no problem with availability of raw
material and has an easy access to flare gas resources.
The company also does not pose a threat of food shortage, company does not use any food
material for production of fuels and also in future they are working on waste materials rather
than food.
27
The company is only focused on automotive fuel industry and does not want to enter other
businesses.
The key competencies of EcoPar AB lie in clean and less toxic fuels; it takes no modification
at part of consumer to use their product instead of ordinary diesel. EcoPar AB has developed a
good sales network, and a good research networks and know themselves their area of research
well. The company is not working on any other byproducts of fuel, is facing financial crises at
the moment and enjoys no subsidies from government. Company officials see their long term
future in producing fuels for diesel engines.
4.4 Lantmännen Ecobränsle
This data is gathered by conducting a number of interviews with company officials and
consulting the company’s website. Lantmännen Ecobränsle is a subsidiary to Lantmännen
energi, a part of Lantmännen group, with RME (rape methyl ester) as its sole product, and
with oil companies, farmers, industries and transport companies as its costumers. Lantmännen
is one of the Nordic area’s largest groups within food, energy and agriculture. The group is
owned by 42,000 Swedish farmers, operates in 19 countries, and has 13,000 employees and a
turnover of SEK 36 billion..
Lantmännen energi is one of the leading energy companies in Sweden and plays a key role in
the shift to renewable energy. Its other subsidiaries include Lantmännen Agroenergi,
Lantmännen Agroetanol and Lantmännen Aspen. Among these subsidiaries Lantmännen
Agroetanol produces biofuels for automotive industry, which is bio ethanol; Agroetanol is
Sweden’s largest producer of biofuel ethanol.
Ecobränsle is active in the field of bio diesel for more than ten years now, with a vision to be
the leading biofuel company in Scandinavia. The company officials claim Ecobränsle’s RME
is the cleanest fuel together with the biogas and alcohol, hence among the most important
components to reduce the green house effect. Ecobränsle’s RME meet with a good margin to
Swedish standard (SS 155436), German standard (SS 51606), and the EU standard, and the
company is not yet done with its product configuration and is still working for more
sustainable and viable solutions.
Ecobränsle’s RME works as well as conventional diesel. It decreases Swedish dependency on
external fossil fuel resources. Most of the rape is collected from Swedish fields, and it’s by
products are also used as feed, manure, coating and in the production of cosmetics. The
company urges a high degree of consensus among general public and policy makers about the
28
policies for renewable fuels which let renewable fuel companies grow and get more
businesses. To adopt an environmental standard and living up to it is taken as a tactic by the
company for competitive advantage. The company sees condition of biodiesel in Europe as
difficult at present, but foresees good prospects in the long term. The company does not see
substitutes for diesel engines in long term future.
The company officials see other bio diesel producers, good logistics, high quality products
and high level of customer service as their competitors. The company has used Lantmännen
Group contacts to launch their product and has used close cooperation and partnerships as
their strategies for supply and distribution and has also planned to use these networks during
exponential increase in volumes in high growth phase.
Ecobränsle has used information and education as important tools to commit buyers to their
product. Officials of the company believe that government, educational institutions and media
have also contributed for spreading environmental awareness among masses. It often takes no
modification for a buyer to use Ecobränsle’s RME, company see being sustainable as its core
competence which attracts costumer to buy its product. The company sees and has built
knowledge and costumers as its intangible resources. The company also does not see food
crises likely to occur because of RME in near future, they also believe that advancement in
technology will cater this issue.
Key competencies of Ecobränsle includes long time experience and competencies in
agricultural products, fuels for transportation (also fossil products), process technology,
research and development department of similar products, and marketing of fuels. The
company also emphasis strong supply and distribution networks and emphasizes the
renewable nature of its fuel.
29
5. Analysis
In this section the six factors namely; political, economic, social, technological, firm’s
resources and capabilities discussed in literature review part will be analyzed with the help of
empirical findings.
5.1 Analysis of Perstorp BioProducts AB
5.1.1 Analysis of external factors (PEST)
� Political
By the time Swedish government and EU has protected biofuels by legislation, and has set
targets for it. Thus Perstorp BioProducts AB enjoys favourable government incentives and
legislations. In fact company officials admit that Perstorp has entered alternative automotive
fuel industry when favourable incentives from government were available, even though the
company is producing bio based chemicals for the past 100 years. It goes straight with Russo
(2003, p. 239) that industries producing alternative energy require institutional support during
their emergence phase.
� Economical
The fuel produced by Perstorp BioProducts AB is renewable in nature, thus it is backed by
supportive government policies for taxes and subsidies. These Government subsidies and
favorable tax policies have added to the economic stability of Perstorp BioProducts AB.The
company has just started its business so production rates are not very high and economies of
scale are low. Moreover, the company is passing through the learning curve thus profit levels
are not very high.
� Social
According to one of the company officials a strong reason to enter alternative fuel business is
the increased environmental awareness among mass public and their willingness to buy green
fuels. This goes straight with Porter (1980 p. 165) who claims that product demand is affected
by changes in lifestyles, tastes, philosophies and social conditions. As people are more
concerned about the natural environment than ever before thus the social factor has played its
part for the emergence of cleaner alternative automotive fuels.
30
� Technical
The company has a strong technical know-how of the field as they are producing esters for
past 25 years. The company is focused to solve the concerns raised by biofuels i.e. dangers of
food shortage due to use of crops for fuel production, with the help of technological
innovations i.e. by extracting fuel from vegetables like algae, jatropha gasification etcetera in
future. Technical factor has its due importance, every industry in this universe depletes the
natural environment in one way or other, Perstorp BioProducts AB also raises environmental
concerns. For the time being these concerns are far less compared with the threats posed by
fossil fuels. Company managers are of the view that they shall be able to cater these issues
with the help of technological advancements. This goes straight with Shrivastava (1995, p.
185) who claims that companies have to upgrade their technologies when new or higher
environmental standards are introduced. It has been seen that Perstorp is working
continuously with its product technology, to make its fuel more efficient, environment
friendly and cheaper, but it has not look to standardize its fuel with other rival firms. There is
a threat that delaying such standardization may delay market growth as buyers can wait to see
what the standard will be. (Besen and Farrell, 1994, p. 119). This may enable Perstorp to
create new product markets and alter consumer demand in existing markets. New product
markets may include markets outside Sweden i.e. European Union, As the European Union
has also set targets to replace fossil fuels with cleaner, environment friendly fuels (Energy
from renewable sources, 2008)
5.1.2 Resources
Perstorp has certain tangible and intangible resources which contribute towards its capabilities
to build competitive advantage (Hall, 1993, p. 611). These resources include, rape methyl
ester (RME) as key raw material, skilled manpower, experience, technical know-how, easy
access to raw materials, supplier and distribution channels as they are in closely related
industries for more than 25 years. These resources help Perstorp to overcome certain entry
barriers proposed by Porter (1980, p.219) i.e. “lack of infrastructure, supply and distribution
channels, skilled manpower etc” to enter an emerging industry.
31
5.1.3 Capabilities:
Capabilities built by the firm are described as follows.
Regulatory capabilities:
The fuel produced by Perstorp BioProducts AB is renewable in nature. Oliver (1997, p. 699)
claims that one of the drivers of sustainable competitive advantage is selective resource
accumulation and deployment. In case of Perstorp the resource (RME) happens to be
renewable in nature and thus fuel produced qualifies for certain government incentives i.e. tax
rebates.
Positional capabilities:
Perstorp has long time experience in closely related fields which accounts for its positional
capabilities. It includes production of esters for the past 25 years, strong supply and
distribution channels, competencies in logistics, experienced R&D department and skilled
manpower.
Functional capabilities:
Functional capabilities of Perstorp BioProducts AB include its ability to increase its
production easily with increase in demand as company owns Scandinavia’s largest RME
plant. Furthermore by products i.e. Verdis Polaris and technical grade glycerine produced by
Perstorp BioProducts AB adds to its functional capabilities providing company with diverse
options for growth. Moreover present technology of the company takes no technical
modifications to switch from conventional diesel oil to RME thus allowing user to perform an
existing function without much trouble.
Cultural capabilities:
Cultural capabilities of Perstorp AB are its core values to produce an environment friendly,
less toxic, renewable fuel, thus providing a sustainable substitute to fossil fuel. This goes
straight with Russo (2003 p. 318) who states that sustainable industries are mission driven i.e.
have a socially oriented goal. This socially oriented goal is fulfilled by the company via
selective use of raw material that is Rape Methyl Ester which is renewable in nature, and with
the help of technology they use to produce fuel. Thus the social concern is addressed by
selective use of raw material and technical know-how of course in the presence of supportive
government policies.
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From external and internal analysis of Perstorp it is seen that Perstorp is presently producing
three types of products one is RME, which fulfils the European standards of diesel oil, second
is Verdis Polaris, a fuel developed especially for cold Swedish winters. The third product is a
low grade Glycerine which comes as a by-product with RME. This Glycerine is sold to
targeted market. Perstorp BioProducts AB has chosen a diversification strategy to achieve
strategic flexibility. The company aims at launching other co and bi-products soon. It goes
straight with Barney (1991, p. 99) who recommends that a company should exploit its
strengths and reduces the external and internal threats in order to achieve a competitive
advantage for a sustainable growth.
From a substitution point of view, Fisher & Pry (1971, p.75) claims that the purpose of
substitution is to allow users to perform an existing function or satisfy an ongoing need
differently from before. In this case the ongoing need is to use fuels with less environmental
damage, something that is being fulfilled by Perstorp.
Another factor that affects the growth of alternative automotive fuel companies is the threat of
substitution from other alternative fuel solutions. Karnani & Wernerfelt (1987, p. 189) claims
that uncertainty comes with a new business, an emerging market or even with a changing
market. Despite having formidable supply and demand networks, Perstorp still faces these
uncertainties. Government interventions and social pressures can shift in the future with
introduction of some more effective and useful fuel anytime i.e. hydrogen fuel engine and
cars run on electricity. The company officials believe that they can cater these issues with the
help of technological advancements.
According to Abernathy and Utterback (1975) a firm should maximize its flexibility under
uncertain atmosphere and according to Sanchez (1995, p.139) resource flexibility is greater
when there is a larger range of alternative uses to which a resource can be applied. Thus
Perstorp is moving in right direction of resource flexibility by considering different alternative
and by products as its future businesses and also considering a number of raw materials as
alternatives for its future growth.
An important managerial decision is the choice of raw material to produce fuel as a number of
choices are available e.g. rape methyl ester, jathropa, straw etc. These raw materials can also
be used to produce a number of other by-products. It becomes the responsibility of managers
to select resources which can be used to produce diverse products thus providing company
with resource flexibility (Sanchez, 1995, p.139). The glycerin produced by Perstorp is an
example of resource and strategic flexibility.
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5.2 Analysis of EcoPar AB
5.2.1External analsis (PEST)
� Political
EcoPar produces clean automotive fuel, extracted from natural gas. As the fuel is not
renewable in nature thus company does not get any subsidy in taxes from government. Thus
the company has to compete with other fuels, both fossil fuels and alternative fuels on its
own. It becomes very difficult for the company to compete with renewable fuels which are
subsidized by the government without any subsidies. This institutional support is considered
necessary for growth of an emerging and socially oriented industry by Porter (1980 p. 219)
and Russo (2003, p. 239).
� Economical
EcoPar is facing economic problems. One reason for this may be the lack of government
subsidies for EcoPar due to the nature of its fuel. This makes it difficult for EcoPar to
compete with other alternative fuel companies. The company has been in the alternative fuel
business for 12 years. However, a still economy of scale is low as general public is not willing
to buy their fuel at comparatively high rates.
� Social
EcoPar is unique in its technology and provides clean and less toxic fuel solutions with lower
emission rates of green house gases and serves for better global environment, environmental
aspect of their fuel provides them with a competitive edge in comparison to ordinary diesel oil
as majority of people are willing to sacrifice some economic growth for environmental
protection (Shrivastava, 1995, p. 184).
� Technical
EcoPar is the first company to sell an operational fuel from 100 % natural gas which is up to
90% more environment friendly as compared to ordinary fossil fuel. Thus their technology is
environment friendly. Also it does not take any modification at the part of consumers to use
EcoPar in their vehicle, which makes its substitution to ordinary diesel oil relatively easier.
EcoPar’s fuel is unique of its type and company has used a diversification rather
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standardization approach for its product and produce fuel that can withstand highly sensitive
environments.
5.2.2 Resources
Key resources of EcoPar include natural gas, skills and technical know-how gathered through
12 years in the field, networks within distribution and supply channels and repute as a clean
fuel. Oliver (1997, p. 699) claims that sustainable competitive advantage can be derived by
selective resource accumulation and deployment. Here in the case of EcoPar Company,
managers anticipate subsidies and favorable policies from the government but are not been
able to get those. One strong reason for this is the selection of raw material i.e. natural gas
which does not qualify for subsidies as it is non-renewable in nature.
Capabilities built upon the resources of EcoPar are given as follows:
5.2.3 Capabilities
Regulatory capabilities:
Company has standardized its products according to U.S and EU standards of fuel. The
company has achievements like a non-hazardous classification for its fuel according to
international air transport association and certain other regulatory bodies.
Positional capabilities:
10 years in the business has helped EcoPar to develop certain positional capabilities that
include reputation as a clean and environment friendly fuel, skilled labor force, strong and
unique R&D department, with the words of one of the interviewee: “as we are the only ones
to produce operational fuel from 100% natural gas”.
Functional capabilities:
The company has a good technical know-how about fuels, years in the field has also helped
EcoPar to develop well-functioning supply and distribution networks.
Cultural capabilities:
The basic aim of the company is to produce environment friendly fuels and company aims to
do the same in future. It produces environment friendly fuel and is directed towards certain
sensitive environments and environmentally concerned people.
Our analysis of EcoPar shows that the political factor affects the company’s growth to a large
extent. In order to get benefited by political incentives product should fall inside the criteria
set by legislations. And it has been also noted that economical factor is influenced by political
motivation. Company faces this problem because it has chosen a resource (natural gas) for its
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fuel production which is not subsidized by the government. Oliver (1997 p. 699) stated that
one of the drivers of sustainable competitive advantage is selective resource accumulation and
deployment. Here in case of EcoPar it can be seen that selection of resource has caught
company in to a difficult situation. This makes it difficult for EcoPar to compete with other
alternative fuel companies. It is suggested that company should focus its products for certain
highly sensitive environments rather than to compete on a broader scale. It may help it serve
its product market more effectively and efficiently (Porter, 1980, p. 38)
5.3 Analysis of Lantmännen Ecobränsle
5.3.1 External analysis (PEST)
� Political
The industry is very much influenced by political forces, government policies and taxes; taxes
range up to 75% of total fuel price. The renewable fuels enjoy supportive government
policies. The company’s fuel (RME) is renewable in nature, thus company enjoys favorable
legislations i.e. tax exemptions and subsidies for its products.
� Economical
The company is a subsidiary to a big group (Lantmännen group), fuel produced by the
company is also renewable in nature thus it enjoys favorable tax laws, and this makes their
product economically competitive. From here it can be seen that political factor has favoured
economical factor affecting the company. Economies of scale are low as production has not
reached to certain high levels.
� Social
As the company’s fuel is sustainable, it reduces green house gas emissions. These
environmental issues act as powerful external drivers for this industry (Epstein & Roy, 2001
p. 590). As these issues are among the strong motives for the development of this industry.
Furthermore company’s fuel is easily substituted to fossil fuel without any modification to
engine which increases its acceptance to general consumers.
� Technical
The company is not yet done with its product configuration and is still working for more
sustainable and viable solutions. Epstein & Roy (2001 p. 592) states that R&D spending is
one of the ways to improve sustainability performance. More sustainable technologies will
help the company to build social legitimacy, and competitive advantage over other firms. The
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company is also not looking about standardization options with their rivals, and lack of
standardization may result in less acceptance of the industry as a whole by the consumers
(Besen and Farrell, 1994, p.119).
Company officials are of the view that they will cater for the environmental issues raised by
their fuel with the help of technological advancements. This increases the importance of
technical factor for the company as they bet on new advance technologies to resolve the
concerns raised by their fuel.
5.3.2 Resources
Ecobränsle comes into the business with competencies in agricultural products, vegetable oils,
fuels for transportation (also fossil products), process technology and marketing of fuels etc
The key resources of Ecobränsle are related experience, skilled manpower, and technical
know-how of the field, state of the art production facility, and formidable supply and
distribution channels. The raw material “rape” is collected from Swedish fields thus it reduces
country’s dependency upon imported fossil fuels.
The company see’s other bio diesel producers; good logistics, high quality products and high
level of customer service as their competitors, and continue to build resources against those.
This is in accordance with (Collins & Montgomery, 1995) who stress about upgrading the
firm’s resources regularly.
By-products of RME are used as feed, manure, coating and in the production of cosmetics.
These by-products provide company with both resource and strategic flexibility to diversify
its products.
Ecobränsle’s RME does not take any modification on vehicle or engine to switch from
conventional oil, thus allowing user to perform an existing function or satisfy an ongoing need
differently from before (Fisher & Pry 1971 p.75)
Interviews with company officials imply that EcoBränsle has a vision to be the leading
biofuel company in Scandinavia, and claims its RME to be the cleanest. Its RME fulfils the
Swedish, German and EU standards for diesel oil and company is still working with its
product configuration to find more sustainable and via-able solutions. This goes straight with
Shrivastava (1995, p. 190), who believes that environmental technologies have become
potential strategic resource and are capable of providing firms with unique and inimitable
advantages.
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5.3.3 Capabilities
Regulatory capabilities:
Ecobränsle’s RME meet with a good margin to Swedish standard (SS 155436), German
standard (SS 51606), and the EU standard. The company has adopted environmental
standards as strategy and living up to it as a way for future growth of company, as changes in
government regulations can increase or decrease demand for products (Porter, 1980, p. 219).
Positional capabilities:
Ecobränsle entered into the business with competencies in agricultural products, vegetable
oils, fuels for transportation (also fossil products), process technology and marketing of fuels
etc.
Functional capabilities:
Functional capability is mainly about know-how of the employees. Lantmännen has used
skills and experience of its staff, managers, and supply and distribution networks to launch
their product and has also planned to use these networks during exponential increase in
volumes in high growth phase.
Cultural capabilities:
Interviews with company officials imply that EcoBränsle has a vision to be the leading
biofuel company in Scandinavia, and claims its RME to be the cleanest compared to all other
alternative fuels present at the market. The company believes that creativity is the only way
forward, and aims to solve environmental issues and hazards related with biofuels through
technological advancements. It carries production of environment friendly fuels as their goal.
Our analysis of EcoBränsle shows that as the company is a subsidiary to a big group the
company does not have to encounter with most of the hurdles associated with new industries
i.e. lack of supply and distribution channels, lack of infrastructure and lack of skilled
manpower etc. The company’s fuel is renewable in nature thus it enjoys favourable
government policies; it has to come across low economies of scale as production has not
reached certain high levels. Furthermore company managers are not yet finished with their
product configuration. Neither have they planned product standardization with other rival
firms in the business.
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6. Discussion. In this part conclusions will be drawn based upon empirical findings and their analysis with
theories chosen. It will be followed by managerial and theoretical implications.
6.1 Conclusions
Based upon the problem discussion and the background in the introduction chapter the
purpose of this master thesis is to describe the factors that affect the alternative automotive
fuel industry and to advice firms in their strategy formulation process for sustainable growth.
By researching three case companies the following conclusions are drawn.
Role of external factors: Interviews with company officials, secondary data and the analysis
of external factors shows that the alternative automotive fuel industry is influenced by
environmental and political concerns and is very much dependent upon government policies.
It also shows that government can create market pull by putting certain taxes and tax
exemptions on certain products and can stimulate people up to certain extent i.e. by taxes and
providing subsidies, to use desired fuels, and thus plays a key role in the growth of alternative
automotive fuel industry.
However these taxes and tax exemptions also pose uncertainties for alternate automotive fuel
companies as an introduction of some more efficient fuel technology may result in end of tax
exemption for them. As government’s aim is to support the most efficient and environment
friendly fuel industries. Thus political factor becomes an important factor for growth of
alternative automotive fuel industry.
It has also been noted that political factor also affect other factors such as economical,
technical and social. Government subsidies and tax rebates directly affect the economies of
both companies and consumers, thus affecting both economic and social aspects.
And as government’s policies support the most environment friendly, workable technologies,
it gives a great importance to technical factor as well. R&D becomes an important department
as it searches for more efficient and effective fuel options as compared to other alternative
fuels and also looks for the solutions of concerns raised by alternative fuel technologies i.e.
aquafier depletion by crops grown for biofuels, fuel or food debate raised by biofuels etc.
Thus technological uncertainty becomes an important factor in growth of these alternate fuel
companies. So companies should always be aware of technological advancements related to
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their field and must have a dynamic R&D department. If they believe to solve their concerns
through technological advancements they should also be aware of threats of substitution from
other companies using more environment friendly and efficient technologies.
It has been seen during the case studies that either companies do not want to standardize their
product with other rival firms. As dominant firms like EcoBränsle are more interested to
remain incompatible with rivals so that they do not lose their market share at the hands of
others companies active in the same field if a standard is established. Perstorp BioProducts
AB is producing “Verdis Polaris” a fuel specialized for cold Swedish winters; EcoPar AB is
specialized in producing fuels for highly sensitive environments, While Lantmännen
Ecobränsle is producing fuel that lives up to Swedish and European diesel oil standards. It
would be beneficial for all the companies to offer compatible products as it would encourage
the consumers to use their product once a standard is established (Besen and Farrell, 1994,
p.119).
This standardization of fuel can help companies to produce a working market and gain the
confidence of costumers otherwise it would be difficult for the costumers to switch from the
fossil fuels and make a choice between different kind of alternatives.
Resources and capabilities: It has been seen in the case studies that companies use such raw
materials in which they have built competencies over a long period of time. We have
concluded that selection of resources is an important strategic decision and plays a vital role
for growth of an industry.
The authors of this study have reached to the conclusion that EcoPar does not get government
subsidies because its raw material “resource”, which is natural gas, is not as efficient as raw
materials used by Perstorp BioProducts AB and Ecobränsle which is RME (rape methyl
ester). Both raw materials differ as natural gas depletes while RME is renewable in natural i.e.
natural gas in not as sustainable as RME. However RME is not the most sustainable fuel, with
technological advancements some better substitute to RME may come in terms of
sustainability as natural gas faces RME or diesel faced natural gas. From here on we are of the
view that as government supports and facilitates more efficient and comparatively more
sustainable fuels thus it brings uncertainty for the firms in this industry as technology tends to
change and improve all the time. We are also of the view that under such a situation flexible
resources built by the companies can help them to continue their sustainable growth, these
flexible resources may include raw materials those can be applied to produce diversified
40
products. Products like Verdis Polaris, and by products like Glycerine produced by Perstorp
BioProducts AB are examples of this kind.
From our study we have reached to the point that industries that depend upon government
support may use a resource flexibility approach to secure their sustainable growth under
uncertain technical atmosphere.
The analysis shows that capabilities built over a long period of time help companies to enter
closely related fields. Companies like Perstorp AB and Ecobränsle that have past experience
in closely related fields, have functional and positional capabilities, like skilled manpower,
reliable supply and distribution channels, strong R&D and marketing departments, do not face
difficulties in crossing many entry barriers as suggested by Porter (1980). Thus core
competencies built over a period of time help companies to enter and grow in newly born
closely related industries.
RME and synthetic diesel are very much similar to conventional diesel oil (fossil fuel)
physically and thus hold the advantage of being substitutable to fossil oil without much/any
cost to consumer which may make them difficult to substitute for a battery run or hydrogen
operated vehicle thus help them to continue their growth.
Exploration of important factors that affect alternate automotive fuel industry has encouraged
authors to advise firms in the development of their growth strategies. As in the words of
Porter (1980, p.34) the best strategy for a given firm is ultimately a unique construction
reflecting its particular circumstances.
Porter’s first generic strategy is about cost leadership. This strategy includes cutting costs in
all areas of operation. Authors do not suggest this strategy for this industry as this industry
operates in a highly uncertain technological environment; research on different fuel solutions
for automobiles is been carried out across the world i.e. hydrogen fuel, build-in hybrids, cars
run on electricity. And government’s policy is to support more environment friendly, more
sustainable fuel. Thus authors recommend high spending on R&D for alternate automotive
fuel industry in order to provide more efficient solutions in comparison with future generation
fuel technologies and also to cater for the environmental concerns raised by them.
6.2 Managerial implications
We suggest that company managers, especially at the R&D department should always be
aware about the technological advancements in the field as technology plays most important
41
role to win favorable incentives from government. Otherwise better technologies will be able
to snatch these incentives from them.
Standardization is an important step for the growth of industry as a whole. However it is not
an easy task. Every firm tries to win with its product configuration as a standard. The
standardization process can be carried out by a joint task force of all the companies in the
business. And this task force can also suggest changes in standard with the changes in
government regulations or costumer needs or in case if a new rival product is launched.
Appropriate resource accumulation and deployment is an important strategic decision for
sustainable growth. We suggest that managers should carefully select the physical resources
in making a long term strategy. The resource must be in line with government policies and
should be able to with stand the competitive and environmental strains.
One way to remain sustainable in a long term future is to build closely related product line; as
done by Perstorp BioProducts AB and Ecobränsle AB. Closely related diversified products
based upon same resources provide company managers with strategic flexibility in case fuel
market faces any radical change in forth coming future
Also raw materials should have better social and ethical values (environment friendly, less
toxic, produced from non-food crops etc.) associated with them in order to remain acceptable
to the public.
And companies that produce environment friendly fuels but do not fulfill the legislative
requirements to be able to subsidize should focus on a specialized market segment. As in case
of EcoPar AB the company should focus on certain sensitive environments i.e. certain marine
environments and for environment sensitive people and should fulfill their needs effectively
and efficiently. However the other two companies Ecobränsle and Perstorp BioProducts AB
should built the capabilities and resources to maintain and enhance their sustainability
performance as both of them produce fuel that is renewable in nature and is friendlier to
environment compared with fossil fuels. Both of these competencies can provide them with
competitive advantage for growth against the new generation of alternative fuel technologies
like plug-in hybrids and hydrogen fuels etc.
On a general level, managers of companies within an uncertain environment should build the
company resources that can be used to produce diverse products. So that if key product fails at
some point of time then business can be shifted towards secondary options. Moreover it seems
better to produce products in an environment friendly way i.e. by using renewable resources,
42
more efficient technologies etc. as social awareness about natural environment, and
government pressures to sustain natural environment are increasing day by day.
6.3 Theoretical implications
The theoretical implications of this study shows that most of the entry barriers associated with
emerging industries (Porter, 1980) does not hold good for firms already active in closely
related businesses as in the cases of Ecobränsle and Perstorp BioProducts AB i.e. such
companies do not need to overcome entry barriers like, lack of supply and distribution
channels, skilled manpower etcetera. It has been seen that competencies built over a long
period of time help companies to grow in closely related fields. However new firms such as
EcoPar are seen to struggle against those barriers.
The study also concludes that from a resource based view, to get a competitive advantage
resources should not only be valuable, rare, imperfectly imitable and non-substitutable
(Barney, 1991 p. 105-106), but those must also be environmentally sustainable.
From this study it can also be seen that companies like EcoBränsle and Perstorp BioProducts
AB reduces uncertainty in a politically influenced industry by developing a diversified
production line.
From this study it can be seen that companies need to standardize their products to produce a
working market and to compete against the effects of uncertainty in a politically and socially
influenced industry.
6.4 Suggestion for further research
This study only includes companies from Swedish alternate diesel engine oil industry. These
companies were selected as these can easily be contacted and interviewed. This may have
limited the effects of findings and results of this study to this particular industry and country
to some extent. A similar study can be undertaken for another country to see if political
motivation is different then how it affects the growth of industry.
A similar study can also be undertaken for bio ethanol, hydrogen fuels or cars run on
electricity. As all these fuels are alternative automotive fuels, but are different from each other
in physical usage by the consumer, technologically, resource wise, and in their effects on
environment. It would be interesting to see whether the factors affecting them are same, and
how much each of them affects the growth of these firms.
43
Other limitations of this study lies in the PEST analysis. The “social factor” is present in our
analysis however no first hand data is collected to analyze this factor. However interviews
with company officials, government websites and published articles provide useful
information about social factor, this is perhaps the reason that social factor could not be
deeply analyzed in this study. No primary data is available also for political factor; however
we think that official Swedish website provides useful information about environmental
regulations and protection, future plans of the government and tax policies etc. Further studies
can be conducted to explore social and political factors more deeply by gathering first-hand
information.
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8. Appendix 1 semi structured interview guide Qualitative questionnaire:
1) What is the company’s history and background?
2) What is the present industry condition? And where do you stand in this industry?
3) What is the company’s present strategy and vision for the future?
4) What core competencies and past expertise do you have that gives you a competitive
advantage in this industry?
5) Are you done with your product configuration? What factors you have considered for
your production standardization? Have you undergone any public survey?
6) Do you see any possible threat from any new generation technology that can make
your technology obsolete, in coming future?
7) Who are your present and possible competitors? What strategies you have chosen to
compete with both?
8) What strategy you have chosen to launch your product?
9) What strategies have been used for supply and distribution?
10) Have you experienced cost reduction with increase in scale?
11) Did company planned in advance for exponential increase in product demand and
costumers? What strategies have been used to ensure the availability of raw materials?
12) Do you face any financial problems? How have you countered these issues?
13) Has government any role in emergence of this industry? How do you see it?
14) What were government’s interests? Do company still fulfil these interests?
15) What is the response of threatened industry? And its distribution channels? Does the
company use same distribution channels?
16) Have you undergone a price war with threatened industry? What strategy did you use
then?
17) Are you aware of buyer reservations about your product? What steps you have taken
to cope with these reservations?
18) Do you see any changed trend in needs of buyers? How will you take advantage of it?
19) What difficulties company face to commit first time buyers?
20) What does it take to switch from existing old technology to this technology as a
buyer?
21) What do you think why buyer will switch from existing product to your product?
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22) What intangible resources company has developed so far? Do these resources give
company a competitive advantage?