Vestas in Brazil: A Case Study on the Effects of Local Content Requirements on Firm Operations

Erik-Arnau Gräs

Student thesis: Master thesis


This thesis seeks to answer the research question How do local content requirements in Brazil affect Vestas’ operations in the country?Methodology: The study is a single-case study of Vestas, and provides a mixed method approach to a longitudinal analysis of secondary data on Vestas and Brazil’s local content requirements. In doing so, I abductively test the theory on the topic and adjust it to the findings in the thesis to propose an adjusted framework for analyzing local content requirements from a firm perspective.Theoretical framework: The thesis builds on the theoretical framework of Kuntze & Moerenhout (2012), who determined 4 factors for the effectiveness of local content requirements for governments. In this thesis, the dimensions are applied to a firm perspective, thus analyzing the operations of Vestas in Brazil according to the following 4 dimensions: Market size and stability, Policy design, Cooperation and financial incentives, and Learning-by-doing potential and degree of current technological knowledge. As a result the theoretical framework is tested in a different context and nuanced.Findings: In this thesis, I find that the operations of Vestas in Brazil have been affected drastically by local content requirements. In particular the most recent FINAME II requirements pushed Vestas to adapt a new strategy in the Brazilian market. In the study, I find that while Vestas was placed under pressure and lost its accreditation with the Brazilian Development Bank (BNDES) in 2013 as a consequence of increased requirements, a change in strategy facilitated by a change in Vestas’ global strategy towards growth markets, allowed Vestas to regain accreditation in 2015 and continue operations. In particular, the new strategy saw a significant change in Vestas’ value chain configuration, as the local content requirements pushed Vestas towards a more horizontally integrated approach than Vestas had typically employed. The change of value chain configuration included increased investment in local factories as well as intensification of collaboration with suppliers. The ability to source production while maintaining quality was the result of a mixture between improved industry sophistication and efficiency in Brazil as well as internal innovation of the design of blades, which allowed for a more flexible and standardized production process. Based on these findings, this thesis thus proposes a framework for evaluation of a country’s attractiveness as a function of its local content requirements. The adjusted framework should be applied as a supplement to established market analysis frameworks, and be applied insofar as local content requirements are a factor in the analysis, in order to expand upon that analysis. It is proposed that companies analyze the attractiveness as a consequence of the requirements by asking four questions, which pertain to the analysis of four dimensions of analysis:Does the market potential justify local investment? Market size and stabilityIs there a fit between the localization required by the policy, and the firms value chainconfiguration? (Policy design and degree of integration allowed by firm strategy)To which degree do the incentives provided for localization outweigh the costs? (financialincentives for localization)How capable is the local industry for cooperation? (Cooperation and current degree oftechnological knowledge)Implications for further research: Based on the findings of the study, I have suggested an adaptation of the applied framework. The framework builds on Kuntze & Moerenhout’s dimensions, but adapts its dimensions and their application to become a more instrumental for companies to evaluate the effects of local content requirements as part of a potential market analysis. As this adapted framework is based in the findings of a single-case study, further testing adjustment of the framework is required to corroborate its validity and usefulness, and as such, more research needs to be done on the effects of local content requirements on firms to more accurately determine the dimensions for analysis. In particular this involves testing the causality between the 4 proposed dimensions and operations in the context of local content requirements.

EducationsMSc in Business, Language and Culture - Business and Development Studies, (Graduate Programme) Final Thesis
Publication date2017
Number of pages73