Spring  2014  

STU  Count:  113.003  

Page  Count:  42  

Copenhagen  Business  School  

BSc  International  Business  and  Politics  

Second  Year  Project  

Vestas  –  Entering  Kenya  through  an  Innovative  Business  Model  

Submission  accepted  by  ________________________________,        Date  __________________  

Authors:  Name   CPR  Number  Kia  Slæbæk  Jensen    Kirsten  Marie  Simonsen    Malene  Louise  Thomasen    Jasmin  Sharzad      

Advisor:  Bjarne  Lykke  Sørensen  Mail:  bjarne.lykke-­‐soerensen@siemens.com  Tlf.      

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Table of Contents 1. Introduction  .................................................................................................................................................  3  

1.1 Research Question  ..................................................................................................................................  3  

1.2 Structure and Limitations  ........................................................................................................................  4  

2. Methodology  ................................................................................................................................................  5  

2.1 Our Approach: Critical Realism  .............................................................................................................  5  

2.2 Ontology  .................................................................................................................................................  6  

2.3 Epistemology  ..........................................................................................................................................  7  

2.4 Case Study & Sources  .............................................................................................................................  8  

3. Theoretical Approach  .................................................................................................................................  9  

3.1 Choice of Theory  ....................................................................................................................................  9  

3.2 Hymer’s Seminal Work  ........................................................................................................................  10  

3.3 Institutional Theory  ...............................................................................................................................  11  

3.4 PEST Analysis  ......................................................................................................................................  13  

4. Vestas as an Actor  .....................................................................................................................................  14  

4.1 Vestas Wind Systems A/S  ....................................................................................................................  14  

4.2 Wind for Prosperity  ...............................................................................................................................  15  

5. Reconceptualization of Hymer’s Seminal Work  ....................................................................................  16  

5.1 Introduction  ...........................................................................................................................................  16  

5.2 Specific Advantages  ..............................................................................................................................  16  

5.3 Removal of Conflicts  ............................................................................................................................  17  

5.4 Diversification  ......................................................................................................................................  18  

5.5 Wind for Prosperity: a Case of FDI?  .....................................................................................................  19  

5.6 The Micro/Macro Environment  ............................................................................................................  19  

5.7 Interim Conclusion: Wind for Prosperity; a Reconceptualization  .........................................................  21  

6. Institutional theory  ...................................................................................................................................  22  

6.1 Introduction  ...........................................................................................................................................  22  

6.2 Economic Demands  ..............................................................................................................................  22  

6.3 Social and Cultural Demands  ................................................................................................................  23  

6.4 Neo-Institutional Theory  .......................................................................................................................  25  

6.4.1 Coercive Pressures  .........................................................................................................................  26  

6.4.2 Normative pressures  .......................................................................................................................  26  

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6.4.3 Mimetic pressures  ..........................................................................................................................  27  

6.5 Interim Conclusion: Wind for Prosperity; Conforming to institutional pressures?  ...............................  28  

7. Model  .........................................................................................................................................................  29  

8. PEST Analysis  ...........................................................................................................................................  30  

8.1 Introduction  ...........................................................................................................................................  30  

8.2 Political Environment  ...........................................................................................................................  30  

8.3  Economic  Environment  .........................................................................................................................  33  

8.4 Social Environment  ...............................................................................................................................  36  

8.5 Technological Environment  ..................................................................................................................  38  

8.6 Interim Conclusion: Vestas’ Challenges when Entering the Kenyan Market  .......................................  39  

9. Conclusion  .................................................................................................................................................  40  

Bibliography  ..................................................................................................................................................  43  

Books  ..........................................................................................................................................................  43  

Journals  .......................................................................................................................................................  43  

Webpages  ....................................................................................................................................................  44  

Articles  ........................................................................................................................................................  46  

Reports  ........................................................................................................................................................  48  

 

 

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1. Introduction 1.1 Research Question Multinational corporations (MNCs) operating in a competitive environment are obliged to think

differently and create new business initiatives, in order to be successful in the modern business

world. Vestas Wind Systems A/S (Vestas) faces this challenge, as the company seeks to thrive in an

industry where competition is fierce and risks are high. Therefore, the company has seen the need to

address these challenges by creating a new type of business model, namely Wind for Prosperity.

This business model seeks to profitably create sustainable and reliable energy to people in some of

the poorest areas of the world. The first wind turbines will be implemented in the rural north of

Kenya, why Vestas has to operate in an area characterized by high degrees of risk and uncertainty.

Vestas defines Wind for Prosperity as being neither Foreign Direct Investment (FDI) nor Corporate

Social Responsibility (CSR), why it constitutes a unique business model. As the business model has

the ability to affect the lives of millions of people and possibly the future of Vestas, its success is of

great importance.

Therefore, this paper seeks to investigate, which underlying mechanisms of the environment caused

Vestas to establish Wind for Prosperity, while at the same time accounting for the possible

challenges that arise when entering the Kenyan market. Thus, the core research question, which this

paper seeks to answer, is:

“Why did Vestas enter the Kenyan market through the business model of Wind for Prosperity, and

which challenges arise when implementing Wind for Prosperity in Kenya?”

The findings of this paper are relevant to Vestas, as the company can use the knowledge produced

in evaluating its decision to expand into Kenya, and to set up a strategy that addresses the

challenges, which the Kenyan market consists of. Vestas is not the only actor for which this

information is applicable, as the main findings of this paper are also relevant to other business

actors. For instance, companies or organizations wanting to enter the Kenyan market can utilize the

challenges identified by this paper, in order to set up the right strategy for entering the country.

Furthermore, the conclusions of this paper calls for a general openness to new ways of doing

business, and thus it provides relevant actors with an inspiration to start doing business in new

ways.

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1.2 Structure and Limitations This paragraph will outline the structure of this paper. Section two will provide an overview of the

methodological approach applied throughout this paper, by clarifying its ontological and

epistemological position. The third section will explain the theories, which will be used in the

analysis of this paper, when answering the research question, along with an explanation of the

choice of these theories. Section four will briefly describe Vestas in a historical context followed by

the main features of Wind for Prosperity, in order to provide an understanding of the involved

actors. Section five will apply Hymer’s seminal work to Vestas and the business strategy of Wind

for Prosperity, as to answer the first part of the research question, namely why Vestas developed

Wind for Prosperity as a strategy to enter Kenya. Section six will extent on the findings from

section five by analyzing the institutional demands and pressures, which affected the way in which

Vestas fashioned Wind for Prosperity. Having applied both Hymer’s seminal work and institutional

theory, section seven will answer the first part of the research question by introducing a model

constructed by the authors of this paper. The model summarizes the factors, which have led to the

formation of Wind for Prosperity, as an entry strategy in Kenya. Section eight will answer the

second part of the research question, which concerns the challenges that Vestas might face when

entering the Kenyan market. This will be examined through a PEST analysis, in order to categorize

the challenges in the political, economic, social, and technological environments. Finally, section

nine will entail the conclusion to the findings of this paper, as well as suggestions for further

research.

This paragraph entails the limitations of this paper, caused by the scope of the Second Year Project.

Firstly, the paper will not answer why it is precisely the Kenyan market, which Vestas has chosen to

enter, through Wind for Prosperity. The first part of the research question should rather be

understood as seeking to answer why Vestas developed Wind for Prosperity as their strategy, when

entering the Kenyan market. Secondly, the paper does not propose an action plan, which Vestas

could use to overcome the challenges arising when entering the Kenyan market. This would require

an extended amount of time and data, which is outside the scope of the Second Year Project.

Thirdly, this paper considers Wind for Prosperity as an isolated case, why its focus is solely on the

implementation in Kenya, discounting the next installation of the project in Jordan. Finally, this

paper will not assess the profitability or long-term sustainability of Wind for Prosperity in Kenya.

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2. Methodology 2.1 Our Approach: Critical Realism Philosophical assumptions underlie every academic study, why it is crucial to be aware of the

authors’ philosophical stand, when engaging in academic research. According to Moses & Knutsen,

the authors of a research question have an ontological nature, which affects the formulation of the

research question (Moses & Knutsen 2012: 2). Moreover, the formulation of the research question

has certain implications for the applied methodological approach. As this paper seeks to examine

which mechanisms led Vestas to enter the Kenyan market through Wind for Prosperity, a

retroductive approach will be applied. Consequently, this paper’s line of argumentation will

approach reality and knowledge from a critical realist perspective. This methodological approach

implies a certain understanding of the social world, which is very different from the other two

methodological traditions, namely constructivism and naturalism. Each philosophical approach

produces a very different result, why it is essential to discern which perspective an academic effort

is subject to. If, instead this paper’s research question had asked, which ideas led to the project of

Wind for Prosperity, then the constructivist approach would have enlightened the research question

better than critical realism. Additionally, if the research question had sought to formulate a general

hypothesis, the naturalist perspective would have been the best methodological approach. In relation

to the intent of this paper, the perspective of critical realism yields the greatest insight, why this

paper will apply the reasoning of critical realism when using different theories and concepts.  

Critical realism was introduced in the 1970s by the British philosopher Roy Bhaskar. The

methodological approach combines the most attractive features from constructivism and naturalism,

as to approach the study of reality in a new way (Moses & Knutsen 2012, p. 12). Consequently,

critical realism blends the ontological and epistemological views of constructivism and naturalism,

in order to identify the real world as consisting of underlying mechanisms and structures. The

discovery of these mechanisms and structures is the principal aim of scientific investigation, why

critical realism furthermore argues that the choice of method depends on the given situation.

Accordingly, both quantitative and qualitative methods are applicable, as long as they serve to

uncover the underlying mechanisms and structures of society, which cause the studied phenomenon

in question (Moses & Knutsen 2012, p. 12). As to understand which implications, the chosen

methodological perspective has on this paper, it becomes essential to outline critical realisms

understanding of reality and knowledge.

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2.2 Ontology Ontology is essentially the study of being, why it is primarily concerned with the basic building

blocks of existence (Moses and Knutsen 2012: 5). Ontology addresses questions regarding

existence, the categorizing of existence, and the meanings of being, which relates to the nature of

reality. Thus, critical realism argues that there is a ‘real world’, which exists independently of our

actions in it (Benton & Craib 2011: 121). Bhaskar reached this conclusion through a transcendental

argument, by asking what the world must be like, in order for it to be the object of scientific

investigation. A transcendental argument follows the logic that if something exists and is

empirically observable; the conditions for its existence must be real as well (Benton and Craib

2011: 124). Thus, for the world to be studied scientifically there must exist a reality outside of our

beliefs about it. Therefore, critical realism agrees with naturalism that the world is real and not a

construct as the most radical fractions of constructivism argue. Consequently, the ontology of

critical realism characterizes reality as existing independently of our beliefs about it, as well as

being stratified and differentiated.

Firstly, critical realism differs from naturalism by arguing that the world is stratified into three

layers (Benton & Craib 2011: 126). (1) The ‘real world’ is the deepest layer consisting of

mechanisms, powers and tendencies, which all scientists seek to discover. This layer, however, is

unobservable and can never be completely known, but only sought to be revealed through

investigations of the two other layers. (2) The ‘actual level’ of flows, can be investigated through

produced experiments, but is more complicated and less predictable outside of the isolation of the

laboratory. (3) The surface of the world is characterized as the empirical level and is directly

observable. Thus, critical realism regards scientific research to be the effort to “penetrate behind or

below the surface appearance of things to uncover their generative cause” (Benton and Craib 2011:

126). In other words, scientists seek to go beyond the empirical and the actual layers, in order to

identify the mechanisms of the deepest layer. The stratification of reality is a distinguishing feature

of critical realism, as it goes beyond the naturalistic claim that all of reality is observable, and it

counters the constructivist claim that scientific reality does not exist outside the beliefs of the

scientists.

Secondly, reality is differentiated into open and closed systems (Benton & Craib 2011: 130).

Bhaskar defined open systems as mechanisms of the ‘real world’, which coexist and interact with

each other. Consequently, there is no single cause for the occurrence of an observable phenomenon,

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why it is difficult to determine the causes of the phenomenon. Closed systems, on the other hand,

describe systems in which deeper laying mechanisms are naturally or artificially isolated, thus only

one mechanism has caused the phenomenon. Accordingly, it is less difficult to determine the

underlying mechanism of a phenomenon in a closed system than in an open system.

Furthermore, the social ontology of critical realism argues that, as society can be studied, social

structures and social actors are two distinct real levels (Benton & Craib 2011: 132). However, at the

same time the two levels are interdependent and continuingly interacting, why social structures are

conceived as relations between social actors. Additionally, these social structures both enable and

constrain the actions of individuals. As the transformational model of social action describes,

structures are reproduced through the activities of social actors, who are also able to transform these

structures through their actions, both intentionally and unintentionally (Benton & Craib 2011: 133).

As a consequence, critical realism recognizes that a social phenomenon is the result of both social

construction and pre-existing structures, why the social world is constantly changing.

2.3 Epistemology

Whereas ontology is concerned with reality, the main concern of epistemology is knowledge and

how we know. The basic question of epistemology is “what is knowledge?”, and therefore

epistemology addresses questions of how knowledge is generated. In addition, it addresses

questions regarding the separation between good and bad knowledge (Moses & Knutsen 2007: 5).

Furthermore, epistemology asks how one should present and describe reality, and therefore it stands

in direct relation to ontology, as the way knowledge is viewed, affects the ontological assumptions

and vice versa (Hatch 2006: 13). Epistemology can be divided into two branches, the first being

foundationalism, which argues that it is possible to assess claims about reality, meaning that it is

possible to determine truth. The second is anti-foundationalism, which argues that there is no basis

for knowing whether any statement is true, and thus it denies the existence of a general truth. Each

of these two claims is related to a certain philosophy of science.

The epistemology of critical realism aims to generate true explanations by uncovering the

underlying structures and mechanisms of the real world (Sayer 2000). Epistemology in critical

realism is neither foundationalism nor anti-foundationalism, instead, critical realism argues that the

truth is out there, but it is not always accessible, and thus knowledge is valuable, but not always

true. The epistemology therefore tries to establish true explanations of phenomena, though we

should never believe that we have discovered truth, as critical realism does not seek to establish

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universal laws. The mode of reasoning is that of retroduction, thus investigating what mechanisms

have made a certain event take place, thereby rejecting the establishment of universal laws.

Retroduction is neither falsification nor verification, but a type of reasoning, which is looking at

how underlying structures may have caused event B given event A (Sayer 2000). This retroductive

reasoning sets the stage for a case study, in which a social phenomenon is explained by analyzing

the underlying mechanisms and structures causing it.

2.4 Case Study & Sources In correspondence with its methodological perspective, this paper will apply a case study approach.

Accordingly, critical realism investigates events and outcomes, which is the visible external

behaviours of people and systems as they occur, or as they have happened (Easton 2009: 120). The

perspective pays particular attention to the processes that produce and reproduce the ordering of

events and social institutions, why the most fundamental aim of critical realism is to answer the

question: “what caused those events to happen?” (Easton 2009: 121). Therefore critical realism

seeks to identify a causal explanation which connects entities and mechanisms, as to explain why

particular events occur (Easton 2009: 121). As a result, the case study of a single entity can provide

an insight into the causal explanations of a phenomenon, why this paper will use the case study

approach. Thus, in line with critical realism, the empirical data of this case study will be used to

make both deductive and retroductive reasoning, as to answer the research question of this paper.

This approach will realise certain constraints and opportunities of this paper. The key constraint is

its low statistical representativeness, as a case study stands alone (Easton 2009: 119). Oppositely,

the key opportunity of the approach is that it enables a deep and comprehensive understanding of a

phenomenon. As this paper aims to understand the occurrence of a phenomenon, the advantage of

the case study approach is deemed to outweigh its constraints. Consequently, this paper has chosen

to apply a case study approach, which furthermore aligns with the methodological perspective of

critical realism (Easton 2009: 119).

The sources applied throughout this paper consist of both primary and secondary sources. A

primary source is an original documentation or recording of information, which is obtained directly

from the concerned source (Moses & Knutsen 2007: 120). This paper utilizes primary sources in the

form of annual business reports, newspaper articles, and interview excerpts. This paper recognizes

that the usage of primary sources does not guarantee objectivity, why a critical approach to primary

sources is essential. Secondary sources are recordings of information originally documented

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elsewhere and represents opposing, neutral, and agreeing opinions, which ultimately contributes to

a multiple angle approach to the case study (Moses & Knutsen 2007: 121). This is expected to

reduce the possible bias of the secondary sources. The secondary sources utilized in this paper

consists of historical books, academic analysis, and newspaper articles. The combination of primary

and secondary sources provides a comprehensive and thorough empirical foundation for this paper.

3. Theoretical Approach 3.1 Choice of Theory According to the methodological approach of this paper, the research question seeks to identify,

which underlying mechanisms have resulted in the phenomenon of Wind for Prosperity, as well as

which structures will challenge its implementation in the Kenyan market. As Wind for Prosperity

has come about in an open system, this paper recognizes that it is not a single mechanism, but a

combination of underlying mechanisms, which has led to the business model. Consequently, this

paper will apply two theories, in order to answer the first part of the research question, as to

illuminate the multiple mechanisms at work in the open system concerning the phenomenon of

Wind for Prosperity. In order to examine why Vestas entered Kenya through the business model of

Wind for Prosperity, it has been deemed necessary to investigate which factors led Vestas to enter

Kenya, as to comprehend, how these factors formed the foundation of the entry strategy.

Consequently, Hymer’s seminal work will be applied, as it clarifies the mechanisms, which have

led Vestas to enter Kenya through a collaborative business model and not through FDI. The theory

has been specifically chosen, as it enables the authors of this paper to analyze Vestas’ reasoning for

going abroad, and to analyze how this reasoning has affected the mode of entry in the Kenyan

market. The second theory to be applied is institutional theory, which illuminates the mechanisms

that have affected the shaping of Wind for Prosperity. This particular theory has been chosen, as it

extents on the findings of Hymer’s seminal work by analyzing the institutional pressures, which

determined the formation of Vestas’ mode of entry into Kenya. Consequently, both theories will be

applied, as they complement each other in highlighting different mechanisms, which have made

Vestas enter the Kenyan market through the business model of Wind for Prosperity. In relation to

the second part of the research question, the challenges, which arise in the open system of the

Kenyan market, stems from the complexity of structures. Due to this complexity, it becomes

necessary to address the underlying different structures of the system, why this paper has chosen to

apply the PEST analysis framework, as it allows the authors of this paper to examine the political,

economic, social, and technological environment of Kenya. Thus, this paper mainly applies theories

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of management. However, theories of microeconomics, macroeconomics, and political science will

also be utilized within the concerned frameworks, as to better enlighten various aspects of the

research question.

3.2 Hymer’s Seminal Work The first modern theory of ‘international operations’ by large companies was put forward by

Stephen Hymer in 1960 (Ietto-Gilles 2012: 51). The work constituted a radical departure from the

conventional neoclassical approach of the time, why it opened up for a new theoretical perspective

regarding capital movements. According to the neoclassical approach, capital was moved across

borders mainly due to the difference in interest rates. Consequently, Hymer started his research by

analyzing financial investments in accordance with neoclassical theory, where after he went on to

consider the peculiarities of foreign investments made by large companies for production and direct

business purposes. Hymer saw the need to differentiate this type of investment from purely

financial investments, as the motivations behind them, in terms of consequences for the company

and the macro economy, differed. Hymer’s differentiation criterion between FDI and portfolio

investment, was that of control, as direct investments give the company control over the business

activities abroad, whereas portfolio investments do not (Ietto-Gilles 2012: 51). According to Hymer

the determinant of whether a MNC should pursue a strategy of FDI cannot be motivated by the

search for low production costs in foreign locations. Hymer claimed that this argument would make

it difficult to explain why local companies cannot compete successfully with foreign owners. As a

consequence, Hymer argued that the key element in the search for determinants of international

production is the existence of structural market imperfections (Ietto-Gilles 2012: 53). Hymer

elaborates on his theory by formulating three main determinants of FDI, in which the key

assumptions are market imperfections and the desire of the company to further its market position.

The first determinant of whether to pursue a strategy of FDI is that of specific advantages, which

the company can exploit profitably abroad, once domestic opportunities have been exhausted (Ietto-

Gilles 2012: 53). According to Hymer, the specific advantage creates market power that enhances

market imperfections, and consequently, a competitive advantage for the company over its rivals.

The second determinant is the removal of conflicts in foreign markets, where rival companies are

already operating, or trying to operate in, a conflictual situation will arise (Ietto-Gilles 2012: 53).

Consequently, as to eliminate the conflict with other companies, a company can share the market

with its rival or it can obtain direct control of production abroad. As the removal of conflicts in the

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market leads to an increase in market power for one of the companies, this determinant will increase

market imperfections. The third, but minor reason, for engaging in FDI, is diversification.

According to Hymer, a strategy of diversification, of market locations or products, helps to spread

risks. Consequently, by engaging in FDI a company reduces its competition by eliminating market

conflicts and exploiting its own advantage. Such a strategy is not cost or risk free, but Hymer

argued that companies are willing to meet these costs and risks due to the expected increase in their

market power and additional profits.

Later in his life, Hymer came to the conclusion that MNCs have a strong reinforcing dimension, and

also a conflictual dimension (Ietto-Gilles 2012: 54). The first dimension is present due to the

worldwide planning and production of MNCs, thus enabling the creation of new technology and

increased productivity. The second dimension of an MNC arises due to the complexity of operating

in many locations, along with the hierarchical structure and geographical division of labor, which

create tensions in the MNC. Jointly, these two dimensions create a major contradiction within the

MNC in terms of planning power. At the micro level, the MNC is able to operate fully, since

activities are not as spread, and in general, the company is easier to manage. On the other hand, at

the macro level, the MNC is left to the market and thus, activities are unplanned, and the

organization is to a larger degree unstructured. This disparity between the micro and macro level

imposes conflicts to the business world itself, as the unstructured planning affects society, and

therefore planning should not only occur within the company (Ietto-Gilles 2012: 54). Thus,

Hymer’s later analysis calls for cooperation across MNCs, in order to create a regional or national

planning framework, as to avoid inefficiency.

3.3 Institutional Theory American sociologist Phillip Selznick was the first to point out that organizations could ensure their

survival not only through efficiency, but also by incorporating their value in the society, thereby

making themselves indispensable (Hatch 2013: 35). This laid the groundwork for the development

of institutional theory, which encompasses several fields of study, including political institutions,

institutional structures versus individual agency, and international organizations etc. (DiMaggio &

Powell 1991). However, due to the limited scope of this paper the analysis will focus on the

institutional theory concerning environmental pressures on organizations, which will be elaborated

on below.

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Institutional theory in this regard stressed that besides the traditional inputs of the transformation

process, such as raw materials, capital, and labor, organizations also need to acquire societal

acceptance. Consequently, organizations compete with one another for not only physical resources,

but also the necessary resource of social legitimacy, which is obtained by succumbing to the

environmental pressures of society (DiMaggio & Powell 1983: 150). Such pressures place demands

on the organization in two discernible ways. Firstly, the environment requires the organization to

produce and trade their goods and services in the market through technical, economic, and physical

demands. Secondly, the environment might have political, social, legal, or cultural demands, which

entail the organization to maintain a certain appearance in order to play a specific role in society.

On the one hand, an organization will be rewarded for efficiently delivering goods and services in

an environment dominated by physical, technological, and/or economic demands. On the other

hand, the society will reward an organization which does, or seem to, conform to the values and

norms of social institutions in an environment dominated by political, cultural, social, and/or legal

demands (Hatch 2013: 74). Being rewarded only for economic fitness and efficiency is no longer

sufficient to sustain an organization. They also need to focus on fulfilling the demands of the

political, cultural, social, and legal environment, which are expressed through institutional

pressures. When an organization conforms to institutional pressures, it is rewarded with social

legitimacy, which can be equally advantageous to the survival of an organization, as any other input

in the transformation process of the organization.

Institutional pressures are directed through the environment of the organization by such institutions

as regulatory structures, government agencies, interest groups, and public opinion. The American

sociologist W. Richard Scott has broadened the scope of what can be hypothesized as institutions to

include “the process by which actions are repeated and given similar meaning by self or others”

(Scott 1992: 117 in Hatch 2013: 75). Through this definition, actions such as voting, recognizing

authority, following routine, and so on, can be conceptualized as institutions, since these actions are

given meaning by others and are continually repeated. Thus, defining institutions as repeated

actions gives explanatory power to social constructions. Neo-institutionalism identify three

institutional mechanisms, which support repeated action; coercive, normative, and mimetic

pressures (DiMaggio & Powell 1983). Firstly, coercive institutional pressures occur, when

governmental regulations or laws exercise the pressure to conform to expectations. Secondly,

normative institutional pressures are at work when cultural expectations arise through the education,

or religious and ideological beliefs of the members in an organization. Thirdly, mimetic institutional

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pressures come about when legitimacy is sought by mimicking a successful organization rather than

being one. This strategy is usually employed when there is a great uncertainty as how to ensure the

success of the organization. Consequently, it is possible for an organization to secure its survival

by gaining social legitimacy by conforming to institutionalized pressures. Legitimacy is thus not

gained through larger profits or better services and products, but by conforming to accepted norms

and values (Hatch 2013: 75). Moreover, once institutionalized standards have been accepted as the

norm, an organization can gain legitimacy simply by following them, regardless of the

organization’s performance. Once a norm is believed to be the truth of how best to organize or

accomplish certain tasks, it has transformed into an institutional myth.

3.4 PEST Analysis The market is in constant change, creating an uncertain environment, which has an important

impact on the companies operating in this environment. In order to manage the constant change, it

becomes vital to identify the factors in the external environment, which are likely to enact an

influence on the company. By conducting a PEST analysis, the company is able to categorize the

important entities in the political, economic, social, and technological environments, which

influence the company (Halik 2012: 14). The political environment contains the extent to which the

government can influence the elements of the environment, which hold strategic importance for the

company. Generally, this is seen in areas such as the political system, conflicts, and other policies or

laws imposed by the government (Halik 2012: 15). Thus, the political factors hold great influence

over the company, as these can constrain the company in several aspects. The economic factors are

those relating to the performance of the economy, which directly impact the day-to-day operations

of the company. These factors include Gross Domestic Product (GDP), exchange, interest, and

inflation rates. The influence of these factors can be seen in the daily operations of the company, as

no company can avoid the impact of a poorly performing economy (Gimbert 2011: 62). The social

factors examine the social environment and determinants such as demographics, cultural trends, and

lifestyle (Halik 2012: 15). This is of great significance to the company as the factors affect demand

and thus they influence the operations of the company. The technological factors concern the

technological abilities of the environment including the foundation of further technological

development. These factors include innovations, research & development, and technological

awareness. The barriers to entry in certain industries can be determined by these factors as well as

the efficiency of production, why the factors can be of vast importance to the company (Halik 2012:

15). Consequently, the framework is utilized to review strategies, positions or directions of a

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company and the results of the analysis enables the company to make qualified decisions regarding

the problem at hand. Furthermore, it is useful, when a company enters new markets, as the

framework clarifies the situation and helps it cope with the realities of the new environment (Halik

2012: 14).

In addition, some analysts include both environmental and legal factors in the model, as they

believe that PESTLE gives a more comprehensive overview of the different external factors, which

the company has to take into consideration. However, these two factors will not be investigated due

to the limited remit of this paper, why the PEST framework will be applied in order to analyze the

challenges faced by Vestas when implementing Wind for Prosperity in Kenya.

4. Vestas as an Actor 4.1 Vestas Wind Systems A/S Vestas is a Danish wind turbine manufacturer, which provides renewable energy to its customers all

over the world. Originally, the company was established in 1945, but it was not until 1979 that the

company started producing its first wind turbines. Vestas differentiates itself from most of its

competitors by specializing completely in wind energy, whereas most of its competitors engage in

multiple services within the energy sector. After decades with both positive and negative results,

Vestas had grown from around 200 employees in the 1970s, to employing approximately 16.000

employees in 2014 (Vestas1). This growth translated into its financial statements, which peaked in

2008, where Vestas had its best financial year. However, in 2009 the company faced internal issues

with specific turbines, falling demands, as well as the challenge of the global financial crisis. This

resulted in a dramatic fall in turnover and stock price, why Vestas found itself in a deep economic

crisis. As a response, Vestas launched its 2-year turnaround, which included a massive reduction in

costs, laying off thousands of employees, as well as the vision that Vestas had the capacity to be the

world leader within wind energy (Vestas2).

Currently, Vestas is seen as the world leader in producing renewable wind energy, measured in the

number of installed turbines. In 2013, Vestas had a market share of 13.2%, which might seem low,

but the market for wind energy is extremely competitive, why Vestas is in close competition with

its main rivals such as General Electric, Siemens, and the Chinese company Goldwind

(Euroinvestor). Due to this substantial competition, it is extremely important to receive orders from

both existing and new markets. To date Vestas has installed turbines in 73 countries worldwide,

mainly in developed countries, but it is receiving an increasing number of orders from countries

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such as Brazil, South Africa, and most recently the Philippines (Vestas3). Vestas is highly aware of

the importance of entering the markets of developing countries, as these are going to demand more

renewable energy due to their industrialization. As CEO of Vestas Anders Runevad states “Vestas

has already gained a first-mover advantage in many of these; in fact, Vestas operates in more

countries than any of our competitors, and we will continue to use our global presence and

expertise to pursue opportunities in these promising markets”(Vestas4). But entering these

countries can be a great challenge; therefore in November 2013 Vestas presented its new business

model Wind for Prosperity.

4.2 Wind for Prosperity In order to create new markets, CMO and senior vice president Morten Albæk came up with the

idea of tracing rural areas with an abundance of wind. This was to be done by connecting locations,

which have a high rate of child mortality with locations that have a substantial amount of wind

(Wind for Prosperity). Vestas was able to detect such a correlation due to the company’s super

computer “IBM Firestorm”, which gathers an extensive amount of wind information across the

globe. This technological competitive advantage enabled Vestas to formulate the business model of

Wind for Prosperity. This is a project of creating electricity to developing countries that are

currently using expensive and/or unreliable energy sources. Vestas is contributing with the

technology, more precisely, they are constructing hybrid turbines from old equipment, which are

easy to install and maintain, mixed with diesel generators so that stable power is ensured, even

when it is not windy (Vestas5). The local governments support the project with knowledge about the

location sights, the culture, and the currently installed equipment. The first project is taking place on

selected locations in Kenya, and the project is expected to expand to developing countries all over

the world. The goal of the project is that within three years, the hybrid turbines will be installed in

hundred local societies, thus changing the lives of millions. Vestas perceives the project as a

business model, why it is expecting future profits and market creation, but Vestas also sees the

project as an engagement in their vision to provide renewable energy to rural areas (Wind for

Prosperity). Thus, Wind for Prosperity is a unique project, combining business opportunities, and

the possibility to assist people in developing countries.

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5. Reconceptualization of Hymer’s Seminal Work 5.1 Introduction This section will answer the first part of the research question by using Hymer’s seminal work as to

explain, why Vestas entered the Kenyan market through Wind for Prosperity. The authors of this

paper has deemed it necessary to apply Hymer’s seminal work in order to understand which factors

formed the foundation of Vestas’ entry strategy into Kenya. Firstly, Hymer’s three determinants,

namely specific advantages, the removal of conflicts, and diversification, are applied to Vestas, as

these laid the foundation for Vestas’ entry strategy. Secondly, Hymer’s later reconceptualization of

his seminal work will be applied to the case, as Hymer argued that MNCs need to collaborate, in

order to minimize the risks of the macro environment. Since Vestas engaged in a collaboration as to

establish Wind for Prosperity, this later reconceptualization will analyze, why Vestas entered Kenya

through a collaborative business model, and not FDI.

5.2 Specific Advantages The following paragraphs will seek to clarify Vestas’ specific advantages in order to explain how

these have affected how Vestas has chosen to enter the Kenyan market. According to Hymer’s

seminal work, the existence of specific advantages enables the company to profitably exploit these

abroad, when the domestic market has been exhausted (Ietto-Gillies 2012: 53). In the case of

Vestas, there are two specific advantages, which are relevant in answering the research question;

Vestas’ specialization in wind energy and the super computer “IBM Firestorm”.

The first specific advantage is Vestas’ complete specialization in wind turbines. Vestas is one of the

only companies in the industry, which focus solely on wind power, as most of its competitors, such

as Siemens, also concentrates on solar, hydro, and biomass power (Siemens). The specific focus on

wind turbines thus enables Vestas to concentrate on the quality and improvement of these to a much

larger extent, than its competitors. This position enables Vestas to make substantial investments in

technology related to wind turbines, and to focus on innovation and adaption of their products to the

local conditions. Consequently, Vestas is able to focus on the development of new technologies

needed for specific purposes. Vestas has made use of this specific advantage in the case of Wind for

Prosperity, since the conditions in this market are different from those Vestas normally operates in.

As the Kenyan grid system is not able to supply reliable electricity, when the weather conditions do

not allow the wind turbines to operate optimally, Vestas has exploited its specific advantage to

overcome this challenge, by developing hybrid wind turbines in Kenya (Wind for Prosperity).

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Therefore, the complete specialization in wind turbines constitutes the first specific advantage of

Vestas.

The second specific advantage is Vestas’ super computer “IBM Firestorm”, which gathers

enormous amounts of data from wind turbines, the weather, and other conditions that are used to

predict how the wind will behave in areas of 15x15 m2 (Computerworld). This is a unique source of

knowledge that enables Vestas to identify the optimal locations to install wind turbines, which is a

specific advantage that none of its competitors can match. This specific advantage constitutes the

foundation of the business model of Wind for Prosperity, as the original idea of the project was to

combine wind rich areas with data on child mortality (Wind for Prosperity). The combination of

these two data sets helped Vestas identify energy-poor but wind abundant areas where Vestas'

hybrid wind turbine solutions can power social and economic growth. Consequently, “IBM

Firestorm” constitutes a specific advantage, as it is able to detect the optimal areas for the

implementation of Wind for Prosperity.

Thus, these two specific advantages has made a clear incentive for Vestas to create a business

model, which allows for the exploitation of the company’s specific advantages when expanding into

Kenya.

5.3 Removal of Conflicts Hymer regarded the removal of conflicts in foreign markets as the second determinant of FDI, since

the entering company would either arrive in the market before its competitors or share the market

with them (Ietto-Gillies 2012: 53). This would lead to an increase in market power for the company

acquiring control over foreign operations, and it would decrease the chance of a conflictual

situation. In the case of Vestas, the removal of conflicts can be seen as a determinant for entering

the Kenyan market through Wind for Prosperity. This is evident in two ways, the first being the

handling of competitors, the second being that of market creation.

Firstly, in order to remove conflicts, Vestas must manage its competitors when entering the Kenyan

market, as all wind producers have a clear interest in the market of developing countries. This

interest stems from the current industrialization process in the developing countries, which lays the

foundation for future business opportunities. Consequently, companies engaged in wind turbine

manufacturing seeks to benefit from these opportunities, why Vestas must engage in the African

market before its competitors, as to secure a first-mover advantage. For instance, Vergent, a French

wind turbine manufacturer, received an order of 120MW in Ethiopia, which is the largest order for

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wind turbines ever obtained in the African market (Smith 2012). Since Ethiopia is one of the fastest

growing markets on the African continent, Vergent thereby gained an upperhand in the region, thus

constituting a serious competitor in the area. Additionally, Windgen Power East Africa has

established a company, which is based in Kenya and specializes in this specific area, thus imposing

a great challenge to Vestas in the African market (Windgen). As Vestas is the largest wind turbine

manufacturer in the world, entering Kenya through Wind for Prosperity would challenge

competitors such as Windgen East Africa and Vergent, and potentially increase the markets share of

Vestas, thus removing conflicts. Given these challenges, Vestas is entering Kenya through Wind for

Prosperity as to remove conflicts, thereby securing their position as leaders in the wind energy

sector.

Secondly, the removal of conflicts fashions the opportunity for a company to create new markets, as

the entry into one region secures the opportunity to expand further into the market. This is evident

in the case of Vestas, since the company seeks to remove conflicts in the African market by entering

Kenya through Wind for Prosperity (Wind for Prosperity). Accordingly, Vestas challenges its

competitors by entering Kenya through Wind for Prosperity, thereby laying the foundation for

further expansion in Kenya, and the rest of the region. After the announcement of Wind for

Prosperity and the onset of the project’s implementation, Vestas received an order of 365 wind

turbines in the Northern region of Kenya in the spring of 2014 (Sørensen 2014). Consequently, it is

evident that the entry into the Kenyan market through Wind for Prosperity has begun a process of

market creation in Africa. Thus, Vestas’ knowledge of, and its partnership with Kenyan actors,

which has been developed through Wind for Prosperity, can be argued to have laid a strong

foundation for further market creation in the country. Therefore, Wind for Prosperity can also be

seen as a way of creating strong ties with African partners, and the project is thus a way of

removing conflicts, in order to create markets.

The analysis has thus shown that by removing conflicts in the African market, Vestas can gain

market share from its competitors, thereby enhancing its position as the market leader in the wind

energy sector. In relation, Wind for Prosperity as an entry strategy has to secure that Vestas is able

to expand into new African markets.

5.4 Diversification The third determinant of FDI proposed by Hymer is that of diversification, which is seen as a mean

of spreading risks. Diversification can be regarded as both the diversification of market locations

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and products (Ietto-Gillies 2012: 53). Hymer argued that this determinant was a minor reason to

expand into foreign markets; nevertheless; the determinant will be included in this paper, due to its

relevance for Vestas. By applying the concept of diversification to Vestas, it is evident that the

company has attempted to diversify its market, and to diversify its product. Seeing, as the industry

for wind power is extremely competitive, Vestas must spread its operations in order to avoid

conflictual situations. The company faced such a situation during the global financial crisis, where

Vestas experienced a decrease in orders (McCabe 2010). Thus, by implementing Wind for

Prosperity in Kenya, Vestas decreases the risks, which it might face, in times of uncertainty.

Furthermore, Vestas is correspondingly diversifying its products through Wind for Prosperity, as

the hybrid turbine, which has been invented for this particular project, is a new invention and

therefore a new product (Wind for Prosperity). Consequently, Wind for Prosperity constitutes both

a market and product diversification.

5.5 Wind for Prosperity: a Case of FDI? As stated by Hymer, the three determinants of FDI consists of specific advantages, removal of

conflict, and diversification. If a company encompasses all three determinants, then Hymer argues

that the best strategy for the company to exploit market imperfections, in order to gain increased

profits, will be to engage in FDI (Ietto-Gillies 2012: 52). Thus, according to Hymer, Vestas should

enter the Kenyan market through FDI. However, the business model of Wind for Prosperity cannot

be identified as FDI, since the long-term aim of the project is to attract private investors to own the

generation and operation facilities (Wind for Prosperity). Moreover, Vestas does not provide the

equity for the project, but mainly the refurbishing and maintenance of the wind turbines, why it is

difficult to account for the extent of Vestas’ control in the project. As FDI entails long-term control

with value-added activities, the business model of Wind for Prosperity lies outside of this definition

(Ietto-Gillies 2012: 15). Thus, it is not a case of FDI. Even though, Hymer would have argued that

Vestas should have entered the Kenyan market through FDI, his later reconceptualization of his

own seminal work, assists in explaining why Wind for Prosperity is a more optimal entry strategy in

Kenya, than FDI.

5.6 The Micro/Macro Environment In his later works, Hymer reconceptualized his seminal work in order to emphasize two dimensions

of MNCs. The first reinforcing dimension, which stress the creation of new technology and

increased productivity, is present due to the worldwide planning and production of MNCs. In the

case of Vestas, the company produces new technology, and aims to increase efficiency and

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productivity. The second conflictual dimension relates to the complexity, which occurs when a

MNC operates in many locations, and when the hierarchical structure along with the geographical

spread of labor, create tensions within the MNC (Ietto-Gillies 2012: 54). In relation to Vestas, the

company has a global structure, as it operates in more than 73 countries, why its operations are

highly complex, due to the geographical spread of its operations. Accordingly, Hymer argued that

MNCs operate fully at the micro level, but will face constraints at the macro level, due to market

forces and the high degree of unplanned activities. In the case of Vestas, macro-level market forces

have heavily impacted the company. For instance, Vestas has lost a huge amount of its market share

in China due to increased competition from Chinese manufacturers, which were favored by the

Chinese government. Consequently, in 2007, the company had 75% market share in China, whereas

in 2013, Vestas was not even in top 15 (Christensen et Al. 2013). Furthermore, the largest impact

of the macro environment on Vestas occurred in the wake of the global financial crisis.

Simultaneously, as the entire Western World went into recession, and governments, consequently,

began to decrease their subsidiaries for the sector of renewable energy, Vestas set off its large

expansion plan. Accordingly, in 2008 Vestas opened its first US factory, and subsequently

announced that it would hire approximately 5,000 new workers in China and the US (Milne 2013).

Thus, on the micro-level, Vestas had planned to expand its business operations as to increase the

company’s profits. However, on the macro-level the global financial crisis affected the micro-level

planned strategy, which led Vestas to suffer economically more than its wind industry rivals. The

instability of the macro-level caused inefficiency within Vestas, as the ill-timed expansion did not

correspond with the financial crisis. Consequently, Vestas was vulnerable to the changes in the

macro-environment, as the conflictual dimension of the MNC caused a clash between the micro and

macro environment of the company.

Hymer argued that the disparity between the micro and macro level imposed conflicts to the

business world itself, why planning should not only occur within the company. Thus, Hymer’s later

reconceptualization of his seminal work emphasizes the importance of collaboration across MNCs,

in order to create regional or national planning frameworks, which counter the uncertainty of the

macro-level and increases efficiency (Ietto-Gillies 2012: 54). Vestas has certainly taken these

precautions into consideration when entering the Kenyan market through Wind for Prosperity. As

suggested by Hymer, Vestas has collaborated with several actors including Frontier Investment

Management, Masdar, and the local government (Wind for Prosperity). This collaboration implies

more efficiency as every actor executes its specific advantage. Vestas will focus on refurbishing

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wind turbines and site-mapping, Frontier Investment Management administers the financials, and

Masdar manages the development of the Wind for Prosperity Projects (Vestas5). Conclusively, it is

evident that Vestas decided to enter Kenya through Wind for Prosperity, as the collaborative project

ensures efficiency and control of the micro and macro level.

5.7 Interim Conclusion: Wind for Prosperity; a Reconceptualization So far, this section has sought to answer why Vestas entered Kenya through Wind for Prosperity.

This has been done by looking at Hymer’s determinants of FDI, wherewith it was found that Vestas

entered the Kenyan market due to specific advantages, the removal of conflicts, and diversification.

Firstly, the specific advantages consist of two factors, particularly Vestas’ specialization in wind

energy and the super computer “IBM Firestorm”. Secondly, the removal of conflicts is

characterized by managing the competition through market creation. Thirdly, diversification is

evident as Vestas diversified its markets and products in order to spread risks. This was followed by

an investigation of the problems that arise in the gap between the micro/macro levels, which Vestas

elucidated by entering the Kenyan market through Wind for Prosperity by establishing a

collaboration.

In relation to this, it is now possible to reconceptualize Hymer’s seminal work, as Wind for

Prosperity does not entirely fit within his original framework. The reconceptualization is based on

the two main findings, which diversify Wind for Prosperity from the original work of Hymer.

Firstly, Wind for Prosperity is not FDI, which Hymer’s analysis is based on. Nonetheless, the

determinants of FDI are still applicable to the case of Vestas, as this was shown in the above

analysis. Therefore, this paper argues that Hymer’s determinants of FDI can also be applied to cases

where FDI is not adopted. The second finding concerns the micro/macro environment, in which

Hymer argued that collaboration should take place across MNCs. This paper found that the

collaboration does not necessarily have to take place between MNCs, as local governments,

investment funds, or other non-MNC actors are also able to engage in these profitable

collaborations. Therefore, this paper argues that Hymer’s argument of the micro/macro environment

can also be applied to cases where only one MNC is involved. Conclusively, Hymer’s theory is

useful for determining which factors lays the foundation for the mode of entry, irrespective of

whether it is through FDI or not. The project recognizes that this conclusion is based upon a single

case study, why the reconceptualization cannot be seen as a general theory. Thus, Wind for

Prosperity is a unique way of doing business, why it becomes interesting to examine which

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underlying mechanisms of the environment pressured Vestas to create the new business model of

Wind for Prosperity.

6. Institutional theory 6.1 Introduction Answering the first part of the research question, regarding which factors pressured Vestas to enter

Kenya through the new business model of Wind for Prosperity, this paper will apply institutional

theory. This approach has been chosen, since institutional theory extents on the findings from the

previous section by illuminating, which external pressures Vestas has had to conform to, when

deciding how to enter the Kenyan market. According to this theory, it is essential to conform to

these external pressures in order to gain social legitimacy, if Vestas is to survive in the market. First

and foremost, the economic and technical demands from the environment will be analyzed.

Secondly, the pressures laid upon Vestas from the social and cultural demands of the environment

will be examined. Thirdly, the neo-institutional elaboration of institutional pressures will be applied

to the situation faced by Vestas, as to examine how Vestas has conformed to coercive, normative,

and mimetic pressures. Consequently, this section argues that the business model of Wind for

Prosperity is a result of Vestas conforming to external institutional pressures as to gain social

legitimacy.

6.2 Economic Demands The first institutional pressures faced by a company is that of economic demands. Elaborating on

these demands, the environment requires the company to produce and trade its goods and services

through market mechanisms. Thus, companies must obtain efficiency by reaching a supply and

demand equilibrium, in order to be rewarded by the environment. Following the global financial

crisis of 2008, Vestas, and the entire wind industry, experienced a severe economic downturn

(McCabe 2010). After the global financial crisis, Vestas announced its most severe loss since

November 2002. In the second quarter of 2010 the company experienced a loss of 119 million

euros, greatly exceeding the average estimated loss of 7.3 million euros. According to Teea

Reijonen, a London-based analyst with the Royal Bank of Scotland Group Plc, this shocking loss

led to a serious setback in Vestas’ credibility, as the company was not able to meet the economic

demands of the environment (Wienberg & Morales 2010). This downturn stemmed from the fact

that the global financial crisis drove banks to restrict loans to Vestas’ costumers, why Vestas

experienced a delay in most of their orders (Wienberg & Morales 2010). As the costumers

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experienced a loss of income, Vestas faced a decreased demand for its products. The drop in

demand, along with a fixed supply, resulted in a situation of excess supply (Frank 2010: 30).

Normally, according to microeconomic theory, when demand decreases and supply remains fixed,

the result will be a lower price and quantity equilibrium. However, because of Vestas’ low cost

control, the lower equilibrium price would infer a great economic loss, which Vestas could not

afford (Milne 2012). Consequently, as to counter this economic downturn, Vestas decreased their

production cost by laying off 2,335 employees (ScienceDirect). Accordingly, this paper assumes

that the dismissal of employees has the same effect as cutting factor prices, in determining the

supply curve, why the supply curve shifted right. Thus, the strategy of dismissing employees did

not achieve the needed effect of maintaining the original equilibrium price, as the shift in supply

curve led Vestas to face an even lower equilibrium price. The only way Vestas could achieve the

goal of maintaining the original equilibrium price, would be to increase demand. The determinants

of demand are income, tastes, price of substitutes and compliments, expectations, and population

(Frank 2010: 35). The only determinant directly within Vestas’ control is that of population, as

expanding to new markets, will automatically increase demand. Thus, Vestas sought to create the

new business model of Wind for Prosperity to expand the market for its products, in order to regain

economic credibility by meeting the demands in the economic environment.

6.3 Social and Cultural Demands A company must not only conform to the economic demands of the environment but also additional

political, social, legal, and cultural demands from the environment. By conforming to the values and

norms of social institutions in an environment, a company is rewarded with social legitimacy, which

is a necessity for surviving in the market. Accordingly, during the last couple of decades, the

business world has experienced intense scrutiny from the public, which has culminated in a string of

concerns about the manner in which businesses operate. Such concerns have generated an

unprecedented amount of demands for CSR, which can be defined as when a company sacrifices its

profits for social interests (Buchholtz 2012: 29). The importance of CSR has continuously increased

in the environment, why CSR has become a measure by which the public assesses a company.

Thus, as to secure survival in the market, it has become even more important for companies to live

up to the concept of CSR in order to gain social legitimacy. According to the Pyramid of CSR, the

responsibility of a company is prioritized in such a way that economic responsibilities have the

most weight, followed by legal responsibilities, subsequently ethical responsibilities, and lastly

philanthropic responsibilities (Buchholtz 2012: 37).

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Taken from Buchholtz 2012 p. 38

Thus, in order to be socially responsible, a company has to live up to its economic, legal, and ethical

responsibilities before it can fulfill its philanthropic responsibilities, which are voluntary activities,

guided only by the desire of a company to engage in social activities (Buchholtz 2012: 36).

Consequently, CSR is part of a company’s philanthropic responsibilities, which are gaining

importance, as they replicate the expectations of the environment. Hence, philanthropic

responsibilities have become a part of the social contract between a company and its surrounding

environment. In relation to Vestas, following the global financial crisis, the company has found it

difficult to fulfill its economic responsibilities. Thus, the company cannot engage in philanthropic

responsibilities through CSR, as it is not able to sacrifice its profits for social interests.

As the aim of gaining profits has been seen as contradictory to that of philanthropic responsibilities,

Vestas has faced institutional pressures to find alternative ways of gaining social legitimacy, other

than CSR. However, according to Michael Porter corporate and philanthropic initiatives are

intertwined as “the company’s social initiatives – or its philanthropy – can have great impact. Not

only for the company but also for the local society” (Buchholtz 2012: 43). Accordingly,

philanthropy can be used to obtain a profit and thereby assist the company in fulfilling its economic

responsibilities. However, the philanthropic business approach has to align with the image of the

company being a good corporate citizen. Consequently, Vestas has faced the pressure of integrating

the demands for social responsibility with the need for earning a profit. Hence, the company has

been forced to use philanthropy in creating a business model that does not necessarily fulfill the

definition of CSR, but which aligns with the idea behind the concept. A way of integrating profits

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with social interest is to make the company’s product more sustainable. However, Vestas’ wind

turbines already conform to the institutional pressure of sustainability in the environment, why the

company has been forced to create a business model in which it uses its products in a sustainable

context.

Correspondingly, the environment has expanded its expectations for the philanthropic responsibility

of CSR, as it is no longer sufficient to sacrifice profits for social interest in order to gain social

legitimacy. Thus, according to Eric Orts, professor of Legal Studies and Business Ethics at Wharton

Business School “CSR is an old-fashioned idea that needs to be upgraded… for companies to take

CSR seriously, it has to be integrated into the DNA of the enterprise” (Wharton 2012). Hence,

companies have to use their products in a sustainable context, why CSR initiatives have to be an

integral part of the business strategy and not a separate department. Thus, companies have to

reconceptualize CSR in order to gain social legitimacy. Consequently, Vestas must align the

economic demands to gain a profit with the social demands of the environment to be a good

corporate citizen through a reconceptualization of CSR. Since Wind for Prosperity is a commercial

business model with the two-fold aim of generating economic growth for both Vestas and the

concerned areas of its implementation, the project integrates the reconceptualization of CSR into the

DNA of Vestas. Thus, the business model of Wind for Prosperity conforms to social demands in

ensuring that the company can make a profit while being a good corporate citizen.  

6.4 Neo-Institutional Theory Neo-institutional theory expands upon the traditional institutional theory by granting explanatory

power to social constructions. Thus, the theory defines institutions as processes of repeated actions,

which are given similar meaning by the company and the environment. Through this approach,

being a good corporate citizen, by repeatedly acceding to philanthropic responsibilities, can be

categorized as an institution. Neo-institutionalism has identified three pressure mechanisms, which

support the repeated action demanded by the environment. Consequently, the social demands from

the environment, in this case the demand for CSR, seeps into the company through these three

institutional pressures. The three pressures are categorized as coercive, normative, and mimetic. The

following section will expand upon how these pressures have helped the external social demands to

seep into Vestas, thus increasing the pressure to attain social legitimacy by conforming to them.

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6.4.1 Coercive Pressures The first institutional mechanism, which support this repeated action, is that of coercive institutional

pressures. This transpires, when the pressure to conform to the environment’s expectations is

exercised through governmental regulations or law. Thus, if the company is forced to conform to

social demands through legislation, then it is the subject of coercive pressures. In the case of Vestas

and the environment’s expectation of the company to be a good corporate citizen, coercive

pressures do apply to some extent. As Vestas is a Danish company, it is subject to Danish

legislation. The “Act amending the Danish Financial Statement Act (Accounting for CSR in large

businesses)” of 2008 seeks to encourage the participation in CSR by Danish companies (CSRgov).

However, the Danish legislation does not force a company to be socially responsible, it does

strongly support the repeated action of large companies engaging in CSR. Thereby, Vestas faces a

pressure from the Danish legislation to act as a good corporate citizen. Nevertheless, as the

economic demands Vestas also faces, does not allow Vestas to engage directly in CSR, the coercive

pressure adds to the social demands already faced by Vestas to develop a business model, which

allows them to make a profit by being a good corporate citizen.

6.4.2 Normative pressures The second mechanism, through which a company is directly pressured by the environment to

conform to its social demands, is that of normative institutional pressures. This occurs as the

cultural expectations, of the members of a company, pressure the company to conform to these

expectations. The expectations are created through the educational, ideological or cultural beliefs of

the employees, which originates from the environment (Hatch 2013: 75). Thus, the social demands

of the environment seep into the company through the expectations its employees has of it.

Consequently, Vestas faced an internal pressure from its employees to conform to social demands,

which is rooted in the external conformity pressures also faced by Vestas. The normative pressures

thereby increase the pressure to conform to the environment’s social demands. Given that the

environment covers the social demand of companies being good corporate citizens, this particular

social demand will also, according to neo-institutionalism, be part of the employees’ expectations of

the company. Considering that a majority of Vestas’ offices are concentrated in Europe and North

America (Vestas6), the company is especially susceptible to the social demands of the Western

world. As the social demand for CSR originated from, and is more prioritized in, this area of the

world, the employees of Vestas are affected by the social demand of the environment. Moreover,

CSR is being increasingly taught at educational facilities thus solidifying it both as an institution

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and as an expectation for the company to uphold. The increased importance of CSR to employees is

evident, as studies have found CSR efforts to improve employees’ perception of the company

(Stawiski, Deal & Gentry 2010: 2). Consequently, the employees of Vestas bring positive views of

CSR into the company as well as an expectation of it to practice good corporate citizenship.

Accordingly, Vestas faces a normative pressure to conform to the social demand of CSR, in order to

not only gain external, but also internal social legitimacy. The normative pressure for CSR, which

originates from the external social demands, thus increases the pressure Vestas is under to conform

to the social institution of CSR.

6.4.3 Mimetic pressures The third institutional mechanism, mimetic pressures, occurs as a reaction to uncertainty. When a

company faces an uncertain economic situation, it will seek social legitimacy by mimicking other

successful companies (Hatch 2013: 75). Consequently, mimetic pressures will lead the social

demands of the environment into the company through benchmarking. In relation to Vestas, the

company faced uncertainty after its economic downturn in 2010, and when the strategy of

dismissing employees did not turn around the company’s financials, it had to seek alternative

methods. Thus, Vestas became forced to perceive the business strategy of other successful

companies. One common denominator of the Fortune 500 companies is that ten years ago, only a

dozen of them issued a CSR sustainability report, but in 2012 only a dozen did not (Wharton 2012).

Moreover, in 2012 more than 8,000 businesses around the world had signed the UN Global

Compact pledge, which assures that the contracting companies are dedicated to act as good global

corporate citizens. This shows an increased focus on CSR practices and it has been reasoned that

“sometimes the most effective means of facilitating increased CSR is through corporate peer

pressure” (Campbell 2007: 955). Accordingly, isomorphism can result from the pressure exerted on

companies by other companies, which are not in the same industry. Thus, companies must

benchmark their activities, not just within their own industry, but also across industry boundaries.

This is a result of the fact that as one company, regardless of industry, adopts CSR practices;

expectations are created for other companies to mimic their behavior. Consequently, expectations

continue to be raised regarding the manner in which CSR is actualized, why companies today are

devising new CSR models. Instead of staffing a small CSR department, many companies are trying

to embed CSR practices into their operations. For example, the blue-chip company Visa has

managed to create new markets in the developing world by aligning its corporate strategy with

social causes (Wharton 2012). Accordingly, Visa has participated in raising the bar for CSR

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practices, so that any CSR initiative has to be an integral part of the business strategy and not a

separate department. Consequently, Vestas faced a mimetic pressure to conform to the social

demand of a reconceptualization of CSR in order to gain external social legitimacy.

6.5 Interim Conclusion: Wind for Prosperity; Conforming to institutional pressures? Conclusively, Vestas’ external environment has exercised different pressures on the company,

which has pressured Vestas to develop the new business model of Wind for Prosperity. First and

foremost, the economic demands of the environment require Vestas to operate efficiently and

economically profitable. This became a challenge for Vestas during the global financial crisis, as

the demand for its products decreased, leading to a situation of excess supply. Thus, the company

was pressured to increase demand by creating new markets. Secondly, Vestas is the subject of

social and cultural demands, which have increasingly focused on good corporate citizenship, why

companies are being pressured by the environment to engage in CSR. However, as Vestas economic

downturn during the global financial crisis does not allow the company to sacrifice profits for social

interests, the company must find a different strategy to portray good corporate citizenship. Thus,

Vestas’ business model must ensure that the company can earn a profit by being a good corporate

citizen. According to neo-institutional theory, the social and cultural demands of the environment

seep into the company through coercive, normative, and mimetic pressures. All of these pressures

have affected Vestas, as they have compelled Vestas to align it business model with the social norm

of CSR. Moreover, the mimetic pressures expand upon the social concept of CSR, as this is no

longer deemed sufficient to gain social legitimacy. Companies must incorporate good corporate

citizenship into their core values and business strategy, why the definition of CSR, as being the

sacrifice of profits for social interests, is no longer adequate. This pressure for a reconceptualization

of CSR facilitates a solution to Vestas’ problem of gaining social legitimacy through traditional

CSR. Hence, due to the institutional pressures of the environment, Vestas faced two distinct

demands, namely that of creating a new market and incorporating the good corporate citizenship

into a new business model. Consequently, it can be argued that Vestas has conformed to these

pressures, as Wind for Prosperity is a combination of the two demands exercised by the

environment. Firstly, Wind for Prosperity creates a new market, as the entry into the Kenyan

market is seen as a stepping stone for entering the African market. Secondly, Wind for Prosperity

reconceptualizes CSR, as it does not sacrifice profits for social interest. Instead, Vestas seeks to

gain social legitimacy by creating a business model, which ensures profits but simultaneously seeks

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to fight poverty. Thus, Wind for Prosperity is the result of Vestas conforming to the institutional

pressures of its environment.

7. Model This section will sum up the findings of the two previous sections, in order to answer the first part

of the research question. In doing so, this paper develops a model that explains which main factors

have led Vestas to enter the Kenyan market through Wind for Prosperity. The model will combine

the main findings from the analysis of Hymer’s seminal work and institutional theory.

By looking at the model, it is evident that the environment surrounding Vestas has pressured the

company to establish Wind for Prosperity as an entry mode into the Kenyan market. Firstly,

Hymer’s seminal work explains how the environment pressured Vestas to establish the

collaborative business model of Wind for Prosperity, which is built on Vestas’ specific advantages,

removal of conflicts, and diversification. The pressure for collaboration stems from the uncertainty

of the macroeconomic environment. Secondly, institutional theory complements Hymer’s seminal

work, by clarifying how the institutional pressures of the environment shaped other characteristics

of the collaborative business model through social and economic demands. Consequently, the

pressures for the creation of new markets, collaboration, and a reconceptualization of CSR, have led

Vestas to utilize a business model, which conforms to these pressures when entering the Kenyan

market. Thus, this paper has so far uncovered the underlying mechanisms, which led to Vestas

deciding to use Wind for Prosperity in the company’s effort to expand into the Kenyan market.

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8. PEST Analysis 8.1 Introduction As Vestas enters the Kenyan market through Wind for Prosperity, the company risks facing certain

challenges stemming from the external political, economic, social, and technological environments

in Kenya. The different factors, which will yield an influence on the implementation of Wind for

Prosperity, will be examined through a PEST analysis. Firstly, the factors in the political

environment, which might have an influence on Vestas, will be analyzed. Additionally, the extent to

which these factors will pose a challenge to Vestas, when entering the Kenyan market, will be

evaluated. Secondly, the challenges, which the economic factors impose on Vestas, will be

analyzed. Thirdly, the analysis will turn towards the social factors to clarify, how these factors

entail possible challenges for Vestas. Fourthly, the factors of the technological environment will be

clarified, as to examine how these factors might affect Vestas when entering the Kenyan market.

Due to the remit of this paper, the focus of the PEST analysis will be concentrated solely on the

challenges, which the Kenyan environment poses to Vestas. Consequently, the opportunities

stemming from the environment will not be elaborated on.

8.2 Political Environment According to the PEST framework it is important to perceive which challenges lie within the

political environment. In Kenya, the political situation has begun to stabilize after the violent ethnic

and politically spurred conflict, which arose after the election in 2007. This fragile political

environment brings about a number of challenges to businesses attempting to operate in Kenya.

Thus, this section will focus on the two main political challenges facing Vestas in the

implementation of Wind for Prosperity in Kenya, namely the political system and the security

situation.

Firstly, the Kenyan political system is still battling the consequences of the one-party-rule by Kenya

African National Union (KANU), which lasted from the country’s independence in 1963 until the

first multiparty elections in 1991. Accordingly, the most important consequence of the one-party-

rule was that of embedded corruption, which is evident, as Kenya has only now begun to replace the

undemocratic 1969 constitution with its 2010 counterpart (Chitere et Al. 2006: 2). The prior

constitution concentrated the power with the president, which was only further solidified during the

presidency of Jomo Kenyatta. The political structure of Kenya during the rule of Kenyatta was one

of both one-party rule as well as sultanism. Sultanism is defined as the privatization of political

power, where the ruler employs his own family and allows them to reap the financial benefits of

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being in power (Brooker 2011: 107). During Jomo Kenyatta’s rule sultanism was evident, as the

power structure of Kenya was built around him and the ‘royal family’ (Tamarkin 1978: 299). Moreover, Kenyatta made use of public resources to ensure the support of the civil servants by both

involving them politically with the KANU party, as well as giving them an economic vested interest

in the regime (Tamarkin 1978: 307). This created a path dependency of using both private and

public funds to ensure political support, which continued during the transition to a multiparty

system, as most civil servants by then belonged to the KANU party. Consequently, the

underpinning of the embedded corruption in the Kenyan political system was created during the rule

of Kenyatta. Even after the one-party dictatorship came to a hold, the political power was

concentrated around the presidency. Thus, the 2010 constitution sought to counter this by

introducing a bi-cameral system, which would have the ability to reign in the power of the president

(Chitere et Al. 2006: 9). Though the bi-cameral system has come into being, there is still a great

amount of ambivalence about the power of the presidency, which could be exploited despite the

new checks and balances (Sihanya 2012: 30). Additionally, the election of Uhuru Kenyatta, the son

of Jomo Kenyatta, as president in 2013 does not indicate a complete break with the former power

structure. Though, he has taken measures against corruption, his status as one of the richest men in

Kenya (BBC), as well as his family’s earlier misuse of power, leaves a lingering doubt as to his

sincerity in these efforts (Tamarkin 1978: 299). Due to this embeddedness of corruption in the

political system, Kenya maintains its bottom position on Transparency International’s Corruption

Perception Index as one of the most corrupt states in the world (Transparency International: CPI

2013). Thus, entering or operating in the Kenyan market implies a daily contact with the corrupt

nature of the political system for all businesses.

The challenge of corruption is that positions of power are gained not through ability, but by

patronage, why the political system becomes inherently more unstable. As Wind for Prosperity is a

collaborative project between, among others, Vestas and the Kenyan government, the instability

caused by corruption in the political system constitutes a challenge for Vestas. This challenge could

potentially arise from the strong tradition of patronage in the Kenyan bureaucratic system, as

Vestas, besides obtaining information from “IBM Firestorm”, seeks locational advice from the

government on where to install the wind turbines (Wind for Prosperity). Due to the tradition of

patronage, the government might not advice Vestas in the company’s best interest, as government

officials could use the placement of the wind turbines to obtain political support. Such gain in

political support stems from government officials being able to “buy” the support of the areas, in

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which they advise Vestas to locate the wind turbines. This support might be “bought” as the project

of Wind for Prosperity promises economic growth, why Vestas risks not receiving the best possible

advice from the government officials. Thus, the risk accompanied by a high degree of corruption

poses a challenge for Vestas, when entering the Kenyan market. Additionally, corruption slows

efficiency and greatly heightens uncertainty when working with the government. The cost of bribes

or ‘speed money’ may make a transaction quicker in the short run, but on a large scale it makes for

increased uncertainty in business transactions. Thus, the degree to which corruption is embedded in

Kenya makes it nearly impossible for Vestas to ignore or counter it, if the company intends for the

operations of Wind for Prosperity to run smoothly (U.S. Department of State). Whether Vestas

participates in the corrupt business system of Kenya is an ethical discussion, which lies outside the

scope of this paper. However, it is evident that corruption, and how to respond to it, is a challenge,

which Vestas will have to face once the implementation of Wind for Prosperity begins.

Secondly, being located near the unstable region of the Horn of Africa, the security situation of

Kenya is very relevant, as stability in this region has proven itself to be quite the challenge. Even

though Kenya has had a reputation of being one of the most stable countries in this region of Africa,

the safety situation has deterred over the last decade, due to both internal and external tensions. The

internal tensions have increased in the population, which is becoming gradually more divided both

tribally, politically, and religiously. The internal tensions peaked after the 2007 election, when the

internal violence between the supporters of Mwai Kibaki, the candidate of KANU, and Raila

Odinga, of the Orange Democratic Movement, clashed in violent battles which lasted over 30 days

and cost more than 1,220 lives (The Hague Justice Portal). Though the violence has subsided, the

tensions resulting from it have yet to be completely stabilized, as the current president is facing

charges from the International Criminal Court (ICC) for committing or contributing to the murders

taking place in that period. Thus, tribal, ethnic, and religious violence continue to plague the

country, resulting in a far from stabile security situation. Accordingly, the tense security situation

poses a great challenge to Vestas, as the tribal tensions taking place in rural areas could possibly

result in property crimes (Embassy of the United States). Thus, Vestas will have to secure its wind

turbines to counter any property crime. Furthermore, Vestas must be highly aware of where its wind

turbines are installed, as to not be involved in any tribal or ethnic conflicts.

Regarding the external tension, Kenya has been the victim of increased acts of terrorism, such as

drive-by shootings and car bombs, which have occurred with increased frequency. The lack of

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security in preventing and dealing with terrorist attacks was illuminated with the takeover of

Westgate mall by the extremist, Somalian group al-Shabab where over 60 men, women, and

children were killed (Howden 2013). The tragedy of Westgate illustrated the instability of the

region. Furthermore, the shared border with the nation of Somalia has caused increased instability

in Kenya. Especially, following the invasion of Somalia in 2011 by Kenya, the country has been an

enemy of al-Shabab, which constantly threatens the stability of Kenya. Moreover, the involvement

in Somalia has led to more terror cells in Kenya, as evidenced by the creation of al-Hirja, the

Kenyan counterpart and collaborator of al-Shabab (Kulish & Kron 2013). Consequently, Kenya is

still not up to par, being ranked number 33 out of the 52 nations on the Moi Ibrahim Foundation’s

‘Safety and Rule of Law’ index (Ibrahim Index of African Governance: Summary 2013: 18). Due to

the instability of the security situation, Vestas faces the challenge of terrorism and violence against

its employees. These threats will result in unavoidable costs for Vestas, as the company will have to

invest in private security, since the government is incapable of stabilizing the country sufficiently.

Summing up, Kenya faces a tense security situation, due to both internal and external threats. The

most problematic part is that the government seems inadequate in dealing with these tensions, if not

outright spurring them on, as the ICC accuses the president of.

 8.3  Economic  Environment  According to the macro-environmental PEST framework, it is vital to identify the factors in the

economic environment, which are likely to enact an influence on the company. Consequently, the

following paragraphs will examine, which factors of the Kenyan economy, Vestas will have to cope

with when entering the Kenyan market. As to limit the scope of this analysis, only the two main

challenges of the economic environment in Kenya will be elaborated on, namely the fluctuations of

the economy and its infrastructure.

Firstly, since Kenya’s independence in 1963 the economy has been inconsistent (Denmark in

Kenya). During its initial years of independence, Kenya experienced a high economic growth rate

of 6%, which declined to below 4% in the following decades. This trend continued in the 1990s

where Kenya’s GDP also experienced inconsistency, ranging from negative figures to a 4% growth

rate (Denmark in Kenya). In the wake of the millennium, Kenya started to experience an increasing

rate of growth, which peaked in 2007 with a growth rate of 7%. Furthermore, over the mid-2000s

the inflation rate remained between 10% and 15%. In 2008 the post-election violence and global

financial crisis led to a decrease in GDP growth rate to 1.7%, and an increase in the inflation rate,

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which peaked at 26.2% (Briceno-Garmendia & Shkaratan 2011). The economy rebounded in 2010-

2011 by showing growth rates around 5%, which was higher than Kenya’s long-term average

growth rate of 3.7% (World Bank 2011: 15), and the inflation had decreased to 3.96 % (Briceno-

Garmendia & Shkaratan 2011). In relation to Vestas, the fluctuating economy might entail a

challenge for its operations in Kenya, as the company cannot rely on the trends in the economy, as

these might change radically in a short amount of time. Even though the economy has exhibited

fluctuations in the GDP growth rate and inflation, during the last 50 years, it has steadied between

2010 and 2013. However, due to macroeconomic imbalances in the economy, Kenya is still

extremely vulnerable towards exogenous shocks, which entails another challenge for Vestas.

In 2011, a number of external shocks exposed Kenya’s unsustainable external position (World Bank

2011: 6). The rapid rise of oil prices, the Euro crisis, and the drought in the Horn of Africa triggered

the depreciation of the Kenyan Shilling to an all-time low. The prevailing expansionary policies

accentuated internal and external macroeconomic imbalances, as credit to the private sector grew

due to a robust domestic demand. This demand put pressure on domestic prices and as aggregate

demand could not be met by domestic production, this resulted in a high demand for imports.

Increasing international prices for fuel and food created inflationary pressures driving inflation up

to 18.9% from the beginning of 2011, through the third quarter (World Bank 2011: 4).

Consequently, the import bill was driven up and as export growth proved to be lackluster, as

Kenya’s main European and Middle Eastern export markets experience their own economic

pressures, the current account deficit became widened. A deficit in the current account shows that a

country is spending more on imports than the country is earning on exports. Thus, the country

borrows capital from foreign sources to make up the deficit, why it requires more foreign currency

than it receives through sales of exports. The excess demand for foreign currency depreciates the

country's exchange rate. When the shilling price of foreign goods increases relative to domestically

produced goods, imports become more expensive. Since imports make up part of the basket of

goods purchased by consumers, measures of inflation based on that basket will also rise. Thus, the

external shocks of 2011 show that as long as the country exhibits a current account deficit, it will be

vulnerable to exogenous shocks. Even though the economy seems stabilized after the fluctuations in

GDP and inflation, the main reason for the imbalance of the economy is still in place (Kariobangi)

as Kenya exhibited a current account deficit of 8.4% of GDP in 2012 (KPMG 2012: 7).

Consequently, Kenya has an imbalanced economy, which is vulnerable to exogenous shocks,

especially developments in the global economy, regional stability and security, as well as weather-

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related supply shocks. As the Kenyan authorities have not yet developed mechanisms to respond

flexibly to macroeconomic risks and shocks, the economic environment is extremely risky for

Vestas. The economic environment constitutes a challenge for Vestas, as the result of the current

account deficit is rising inflation. If the inflation rises, it will have an impact on Vestas’ turnover, as

there will be a fall in business due to increasing prices. As Vestas has signed a maintenance and

service contract with the Kenyan government, a rise in inflation would undermine the value of the

long-lasting contract (Wind for Prosperity). Consequently, as the economy is imbalanced it is

impossible to predict the rate of inflation, which constitutes a major challenge for Vestas.

Secondly, an efficient network of the infrastructural facilities is paramount for the smooth operation

of businesses, as poor physical infrastructure leads to increased production and transportation costs,

which reduces a company’s competitiveness (UNCTAD 2012: 15). Evidence from enterprise

surveys suggests that infrastructure constraints are responsible for about 30% of the productivity

handicap faced by Kenyan companies (Briceno-Garmendia & Shkaratan 2011). Due to the limited

scope of this paper, only the state of Kenya’s transport system, especially the port and road

network, as well as the telecommunications infrastructure will be considered. Accordingly, Kenya’s

transport system includes a single commercial sea port at Mombasa, as well as a network of

classified and unclassified roads (UNCTAD 2012: 15). Despite investments in the security by the

government of Kenya, piracy off the coast of Somalia has presented a challenge for shipping to the

port (UNCTAD 2012: 15). Due to the size of the V47-660 kW wind turbines, which Vestas is

installing in Kenya, the company has to transport its wind turbines by sea and thereafter drive the

components of the turbines to the location. Consequently, the security conditions of the Mombasa

port is a clear challenge for Vestas, especially with regards to insurance costs. Furthermore, the road

network is characterized by a rehabilitation backlog that must be addressed before the trunk

network can be considered to be in a maintenance condition. As of 2006, levels of capital spending

for the road sector were around 1% of GDP, which was low by regional standards and fell

substantially short of what was needed to clear the rehabilitation backlog (African Development

Bank Group 2011). Consequently, the proposed area for the first Wind for Prosperity location is

approximately 1,200 km from the seaport of Mombasa, why Vestas has to transport the wind

turbines across the country by using the road network. Even though, the majority of this road

already exists, a distance of approximately 200 km of existing rural road requires rehabilitation

work (African Development Bank Group 2011). The actual construction of the 200 km road is

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expected to take approximately 15 months, which represents an additional challenge for Vestas, as

the installations of the wind turbines risk being postponed.

In addition, the potential for telecommunications traffic can be regarded in terms of certain factors;

telephone exchange connections, public call boxes, e-mail, and telephony. Kenya has experienced

major challenges in its telecommunications, as this sector was underdeveloped until the

government’s recent attempts to improve it (KPMG 2012: 10). Telecommunications in urban areas

have improved substantially, since the country has established fiber optic cables, which has ensured

communication access to all major cities. Despite the rapid growth of telecommunications in the

urban areas, the remote sites are still lacking behind, thereby imposing an economic challenge for

companies operating in these areas. Further, the extensive cost and lack of telecommunication

coverage is due to the fact that Kenya has not liberalized the sector, as Telkom Kenya has the

monopoly in providing gateway services and telephone lines. These services have proved inefficient

and costly, thus curtailing the development of the internet and telecommunication service. This

entails a challenge for Vestas, as all modern day business operations are dependent on the

availability of telecommunication and the company has to operate in rural areas, where the access to

telecommunication is limited (UNCTAD 2012: 26). Thus, the Kenyan infrastructure gives rise to

multiple challenges for Vestas, as the company has to transport its product in rural areas, which

entails security threats, and have limited access to telecommunication.

8.4 Social Environment This section will investigate the social factors that might influence the implementation of Wind for

Prosperity in Kenya. Given the remit of this paper, the following paragraphs will focus on two

aspects of the social environment, which poses a challenge to Vestas. The two factors are education,

and the population’s attitude towards the environment, as these were found to be the most relevant

for Vestas’ operations in Kenya.

The first factor is that of education, which has undergone changes in Kenya during the last two

decades. Since 1985, Kenya has been operating with an 8-4-4 education system, which implies

attending 8 years of primary school, 4 years of secondary school, and 4 years of university (Ferré

2009: 10). In 2003, the Kenyan government fulfilled its promise of providing free primary school

to all Kenyan children, which was procrastinated due to the low economy and the increase in the

population rate (Maps of World). It is thus evident that there are initiatives in Kenya, which seek to

improve the level of education. Progress has been made, as 82% of the population between the ages

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of 15-24 was able to read in 2007. It is, however, notable that only 50% of the population above the

age of 24 had completed primary school in 2010, and only 8% of the population above the age of 24

has completed university (UNdata). Consequently, the low educational level in Kenya has the

possibility of posing a challenge to Vestas, as the operation of wind turbines, and the maintenance

of these, demand high technological knowhow. Thus, the low rate of university attendance in Kenya

might imply that the population lacks the means to fill the jobs, which the project of Wind for

Prosperity creates. As a result, Vestas may be forced to employ foreign citizens in the project, who

have the necessary skillset. However, obtaining work permits can be a hassle in Kenya, as the

government only issues work permits to foreigners, who are either senior managers or who

possesses competencies, which are not available in the Kenyan labor market. Hiring expatriates is

thus followed by a rather complicated and exhaustive process of proving that the specific skill

looked for in a worker is not available in Kenya. However, the Kenyan Ministry of Labor plans to

make a thorough list of the skills not available in Kenya, instead of foreign investors having to

prove this. Nevertheless, the process is ongoing and does not apply yet (KPMG 2012: 10). Thus, the

low educational level in Kenya combined with the rigid process of hiring expatriates present a

challenge for Vestas, when implementing Wind for Prosperity.

The second factor, affecting Vestas when entering the Kenyan market, is the public’s attitude

towards sustainability and renewable energy (May 2013). The health risks and environmental

implications, which unsustainable waste management and energy sources create, is an issue that the

Kenyan population is highly unaware of. This results in an incorrect handling of waste, which

causes pollution of the natural environment, as well as a substantial danger to the public health

(UNEP). Consequently, the public’s unawareness of the implications of unsustainability constitutes

a vicious cycle, as recycling becomes neglected. However, the Kenyan government has attempted to

break this vicious cycle by encouraging the production of energy from wind turbines, why the

government has implemented a policy of feed-in tariffs (UNCTAD 2012: 39). Thus, the possible

challenge for Vestas stemming from the social environment is not related to the attitude of the

Kenyan government, but rather the public’s unawareness of sustainability. As Wind for Prosperity

generates sustainable energy, it is questionable whether the population will be able to recognize the

benefits of the project. This might constitute a challenge for Vestas, as the population does not

value the fact that wind energy is better for the environment and health, compared to more polluting

sources of energy. Thus, if Vestas’ competitors, in the energy industry, is able to offer the Kenyan

population cheaper energy, then the Kenyans might disregard the source of energy in favor of lower

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costs. Hence, the unawareness of the Kenyan population, regarding the importance of sustainable

energy, has the possibility of challenging Vestas in its operations, due to the potential lack of local

support for the project of Wind for Prosperity.

8.5 Technological Environment The technological factors imposing challenges to companies consist of the technological ability and

awareness, including innovations, and the impact that these factors have on the cost structure of the

company. In the case of Kenya, the two most important technological factors affecting Vestas are

the grid system, as well as the extent to which technological factors affect the cost structure of the

company.

The first technological factor affecting Vestas is the general condition of the Kenyan power

situation, and in particular, the state of the grid system. Several reports analyzing the business

environment of Kenya comes to the conclusion that the main challenge of operating in the country,

is the one imposed by unreliable energy sources (UNCTAD 2012: 13). It is not unusual to

experience regular power breakdowns, thus imposing a major technological challenge to companies

operating in Kenya, and especially those operating in rural areas, where electrification is only 4%.

The reason for these breakdowns is to be found in Kenya’s current power capacity, as 30% of the

power is generated through dams. Since Kenya experiences regular droughts, the power generation

of the dams decreases, thereby leading to a shortage of power. Currently, Kenya has the capacity to

produce 1,330 MWh, and is consuming 1,191 MWh, but with an annual energy consumption

increase of 7%, Kenya is lying menacingly close to the limit (UNCTAD 2012: 50). In order to deal

with this, Kenya has an emergency power arrangement, which is based on diesel generation, but

companies are encouraged to establish an emergency generator themselves, in order to avoid power

breakdowns.

The condition of the Kenyan grid system directly affects Wind for Prosperity, as Vestas is planning

to connect the hybrid wind turbines to mini grids in rural areas. Therefore the situation imposes a

technological challenge to Vestas, who has to deal with these conditions in order for the project to

create reliable energy. Since the wind turbines only generate power when it is windy, it is crucial

that another reliable system can take over, once the turbines are not producing power. Thus, Vestas

has to produce technology that can deal with the unreliable grids of Kenya, thereby ensuring

reliable energy from the turbines, even when it is not windy. Therefore, the first technological

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challenge faced by Vestas when entering the rural areas of Kenya, is the power situation, thereby

forcing Vestas to advance its own technology in order to deal with the challenge.

The second technological factor is related to the technological factors that affect the overall cost

structure of the company. The impact that technological challenges have on the cost structure of the

company, is extremely important since the cost structure is essential to the survival of the company.

There are high technological costs of operating in Kenya, which can mainly be seen in terms of

energy, intellectual property rights and patents, as well as insecurity. Firstly, the energy sector, as

mentioned earlier, is unreliable and expensive, since energy tariffs and fuel bills are high (KPMG

2012: 10). This will be a challenge to Vestas, as the hybrid turbines will be connected to diesel

generators, in order to create energy when it is not windy, therefore, costs of fuel will affect Vestas.

Secondly, costs of intellectual property rights and patents are high, thus creating a potential threat to

Vestas, and its many technological innovations (KPMG 2012: 14). Thirdly, the general issue of

security in Kenya imposes a threat to all sectors, including the technological one, since insecurity

affects the cost structure. Vestas is operating in the rural north of Kenya, where riots occur

regularly; therefore, Vestas has to include security matters into its cost structure. Thus, the second

technological challenge faced by Vestas is the technological impact of the cost structure, wherewith

Vestas needs to address energy, intellectual property rights and patents, as well as insecurity. In

sum, there are major technological challenges for Vestas when entering Kenya. The most important

one is the current technology of the grid system, as this is the one affecting Vestas the most, when

entering the Kenyan market through Wind for Prosperity.

8.6 Interim Conclusion: Vestas’ Challenges when Entering the Kenyan Market By applying the PEST analysis to Kenya, it has been possible to trace the challenges faced by

Vestas when entering the Kenyan market. The analysis gave an indication of the most essential

challenges with the political, economic, social, and technological environment. The main challenges

in the political environment stem from corruption and the unstable security situation, why Vestas

must be aware of the lack of transparency, along with the possibility of riots in the rural areas. The

economic environment imposes challenges in terms of the general macroeconomic state of the

Kenyan economy and the lack of sufficient infrastructure. The social environment constitutes

challenges of education and the public attitude towards sustainability, why Vestas faces a potential

problem of inadequate labor, along with the general attitude of the population towards renewable

energy. The challenges imposed by the technological environment are the grid system and the

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impact that energy, property rights and patents, as well as insecurity has on the cost structure of

Vestas. The challenges stemming from the four environments are summarized in the model below.

Overall, these challenges will have a major impact on Vestas’ operations in Kenya, leading to the

greatest challenge of all; the success of Wind for Prosperity. If the project fails due to all these

challenges, Vestas risks finding itself in a situation of major misfortune, letting down the Kenyan

population, and hurting the company’s image. Thus, Vestas must create a strategy, which manages

these challenges, as a failure of the project could impose a devastating backfire on Vestas, as the

credibility of the company would suffer significantly. Since Wind for Prosperity in Kenya is the

first of its kind, its failure could therefore affect the planned installations in all other developing

countries, thereby influencing millions of people all over the world.

9. Conclusion This paper has sought to answer the research question: “Why did Vestas enter the Kenyan market

through the business model of Wind for Prosperity, and which challenges arise when implementing

Wind for Prosperity in Kenya?”. The foundation for answering this research question was based on

the ontological and epistemological assumptions of critical realism. This methodological

perspective enabled a case study approach in order to uncover the underlying mechanisms, which

led Vestas to enter Kenya through the business model of Wind for Prosperity. Additionally, the case

study method enabled the authors of this paper to examine the structures of the open system of the

Kenyan environment, as to identify the potential challenges faced by Vestas, when implementing

Wind for Prosperity in Kenya.

Page 41 of 48    

In accordance with critical realism, the study of an open system implies that a phenomenon is

caused by multiple mechanisms, why this paper has applied two theories in order to answer why

Vestas entered Kenya through Wind for Prosperity.

Hymer’s seminal work was applied in order to answer the first part of the research question. In

order to understand why Vestas entered Kenya through the business model of Wind for Prosperity,

it was deemed necessary to investigate which factors led Vestas to enter Kenya. As to comprehend

how these factors formed the foundation of the entry strategy, Hymer’s seminal work was applied

as to identify Vestas’ specific advantages, the removal of conflicts, and diversification. The specific

advantage of Vestas is the company’s complete specialization in wind, as well as Vestas’

possession of the “IBM Firestorm” super computer. The removal of conflicts was identified as

being the management of competition through market creation, wherewith Vestas gains a first-

mover advantage in Africa by entering Kenya. Diversification was found to constitute the spread of

risks, which Vestas had to address by diversifying markets and products. This analysis was

followed by an examination of the micro/macro environment and, as proposed by Hymer, it was

concluded that Vestas engaged in the collaborative business model of Wind for Prosperity, in order

to manage the inconsistency of the micro/macro environment. Summing up, Hymer’s seminal work

explained which three determinants created the foundation of Vestas’ entry strategy into Kenya, as

well as, illuminating how the collaborative business model of Wind for Prosperity came about.

Furthermore, the first part of the research question was analyzed through institutional theory. By

applying this theory to Vestas, it was determined that the economic demands of the environment,

pressured Vestas to create new markets, in order to address the unfavorable economic situation,

which the company suffered from, in the wake of the global financial crisis. The social and cultural

demands of the environment pressured Vestas to engage in CSR. However, as Vestas was

constrained by its financial situation, the company was not in a position to sacrifice profits for

social interests, why Vestas reconceptualized CSR by constructing Wind for Prosperity. In relation

to this, this paper found that neo-institutional theory explained how the environmental institutional

pressures seeped into the company, thus explaining why Vestas chose to enter Kenya through Wind

for Prosperity. Hence, Wind for Prosperity is the result of Vestas conforming to the institutional

pressures of both the economic and social demands of the environment.

By combining the findings of the analysis obtained through Hymer’s seminal work and institutional

theory, this paper created a model in order to explain the main mechanisms leading Vestas to

Page 42 of 48    

choose Wind for Prosperity as its entry strategy into the Kenyan market. Conclusively, Vestas

entered the Kenyan market through Wind for Prosperity in order to conform to the contemporary

environmental pressures by creating a business model, which addressed the conflictual dimension

of the micro/macro environment, the demand for profit, and good corporate citizenship.

A PEST analysis was implemented in order to answer the second part of the research question,

wherewith the framework identified the main challenges when entering the Kenyan market. The

challenges arising from the political environment were identified as corruption and an unstable

security situation. The economic environment imposed challenges in terms of an imbalanced

economy and unreliable infrastructure. The social environment in Kenya is characterized by

insufficient education and the challenge of the population’s attitude towards sustainable energy. The

challenges imposed by the technological environment were identified to be the electrical grid

system, and how intellectual property rights and patents, as well as insecurity affected the cost

structure of Vestas. Conclusively, this paper found these as the main challenges for Vestas when

implementing Wind for Prosperity in Kenya.

This paper recognizes that further research into the topic could possibly lead to a more

comprehensive analysis than the remit of this paper allows for. This could be done by investigating

why Vestas decided to start out in the Kenyan market, thereby extending the suggested model.

Further research could also include the establishment of an action plan of how Vestas should

continue its implementations of Wind for Prosperity in Kenya and the other planned sites. Finally,

this paper suggests an investigation of whether or not the project is financially sustainable for

Vestas, thereby determining if Wind for Prosperity is a profitable business model. This will

determine whether Wind for Prosperity has been a failure or not, thereby affecting future

installations, and also, the lives of millions.

 

 

 

 

 

 

Page 43 of 48    

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