By Rachel McBryde
This blog post is part of a series of essays written by BAIB students on the contextual factors of Brexit on multinational enterprises for the module Multinationals in the Domestic and Global Context.
E.ON is a German-based international energy supplier that previously focused on the generation, distribution and storage of electricity from traditional and renewable means (Marketline, 2016a). As of the 1st of January, the company was divided into two specialised companies, with Uniper focusing on the classic energy world, and the new E.ON, focusing on the new energy world of renewables as part of their sustainable energy strategy (E.ON, 2017b). By absorbing sustainability into their strategy, what does this hold for E.ON in a post-Brexit United Kingdom (UK) market? The first part of this essay will explore how E.ON utilised their strategy of corporate sustainability to innovate within the renewable energy sector through collaborative and clarity green innovation games (Lampikoski et al., 2014). Building from this, two frameworks of MNE and public policy by Rugman and Verbeke (2003) will be used to analyse the feasibility of E.ON’s new strategy post-Brexit, in the context of Germany’s and UK’s country goals, and their strategic perception of former and current public policies within the UK.
A way to analyse their strategy of integrated sustainability is by Lampikoski et al (2014) Green innovation games, which encourages firms to reduce their environmental footprint by maintaining resources for future generation, whilst enhancing competitiveness. It’s a way to understand how environmentally friendly innovations can be a result from corporate sustainability and value-creating strategies (Lampikoski et al., 2014). Firstly, E.ON strategy illustrates the collaboration game whereby they aim to innovate and create value through external partnerships (Lampikoski et al., 2014). For instance, in 2007 the E.ON Energy Research Center was created to focus on climate protection and energy efficiency, based on a partnership between E.ON and RWTH Aachen University (E.ON, 2017a). This creates opportunities for E.ON to partake in projects collaborated through E.ON ERC Institutes with external partners within the scope of their focus (See ERC, 2016). Additionally, in 2015 they acquired UK’s first community wide emissions-free renewable energy scheme with technology providers Star Renewable Energy and SK Solar, alongside the University of Exeter in securing a government research grant (Marketline, 2016a). Additionally, E.ON’s renewable energy partnerships range across Europe and North America with a portfolio of onshore wind farms, offshore windfarms, and solar (See E.ON, 2017). In this sense, E.ON chose partners that are best suited to their goals of sustainability in order to co-create innovations in the renewable energy industry.
A characteristic outcome to this game enables opportunity for co-opetition and collaboration which according Mytelka (1991) and Freeman (1990) is a motive for creating new technologies. Interestingly, co-opetition within the renewable energy industry is a similar motive for E.ON’s new strategy (See E.ON, 2017b). Therefore, collaboration entails a positive sum-gain which E.ON and their partners can benefit from in their long-term strategic view, the reduction in price of renewable energy (Lampikoski et al., 2014). As argued by Dodgson (1993), companies involved in the partnership wouldn’t have achieved so individually. However, the collaboration game can only be achieved if barriers such as trust between E.ON and their partners are enhanced to achieve learning in their R&D for technological developments in renewable energy (Dodgson, 1993). Once trust is established the relationships created through their knowledge and technical skills for renewable energy technologies employed by E.ON and their partners generate a lasting partnership (Dodgson, 1993), enabling them to respond to uncertainties such as Brexit and changing consumer demands (Ciborra, 1991).
Another characteristic outcome E.ON illustrates from this game, is their co-operation with policymakers, stated previously through the research grant provided by the UK government (Marketline, 2016a). Similarly, E.ON co-operates with local NGOS’s in the UK in consulting them on the 2011 Rampion Offshore Wind Farm Proposal surrounding concern and local issues regarding the project (E.ON Energy, 2012). NGO’s and policy makers in this sense become an institutional variable that effects E.ON’s future within the renewable energy industry. As Doh and Guay (2006) argue, NGOs within the European Union (EU) can affect national policies, business groups and institutions. Thus, as similarly argued by Ascani et al (2015), establishing a positive relationship with institutions are important, to overcome complexities related to policies.
In contrast, E.ON illustrates characteristics of the clarity game whereby they are re-writing the rules of the renewable energy industry by reinventing their vision, mission and purpose of their firm (Lampikoski et al., 2014) by being the first European energy company to divide themselves into two specialised company, with one focusing solely on renewables (See E.ON, 2017b). For instance, as of 2014 E.ON’s new strategy “Empowering customers. Shaping Markets” represents their vision of sustainability and entering the new energy world of renewable energy (E.ON SE, 2017b). As the UK population increasingly consumes energy from renewables shown in figure 1 below, it further strengthens their strategy in the possibility of becoming UK’s provider for renewable energy, highlighting future opportunities for E.ON. With their new strategy in mind, how can E.ON overcome Brexit uncertainties?
Figure 1 renewable energy or waste source consumption in the UK
Source: Digest of UK Energy Statistics (DUKES) 2016, Department of Business Energy and Industrial Strategy (BEIS) (Macleay, Harris and Annut, 2016)
Per Cummings and Zahra (2016) Brexit will create opportunities for entrepreneurship and international business opportunities globally, however, challenges will raise creating consequences for current businesses in the UK. The analytical framework developed by Rugman and Verbeke (2003) will be used in the next section of this essay to illustrate the consistency between E.ON’s goals, alongside Germany and the UK. Utilising this analysis will determine the viability of E.ON’s strategy post-Brexit.
Figure 2: The consistency between MNE and Home and Host Government Goals
Source: Rugman and Verbeke (2003)
Firstly, prior to Brexit, it can be argued that E.ON, Germany and the UK are placed within the 4th quadrant of fig 2, whereby E.ON supported technological transfers and trade between Germany and the UK, as both nations were members of the multilateral trade agreement of the European Union (EU). E.ON’s home and host goals were complementary as both countries were required to follow Article 4 of the Lisbon treaty in 2009 on the Functioning of the European Union (TFEU) to provide “shared competence between the Union and the Member States… in the areas of trans-European networks and energy” (European Union and Policy Department, 2015). Secondly, in 2014 the EU council agreed on the “2030 framework for climate and energy” a goal of reaching 40% cuts in greenhouse gas emissions, 27% share for renewable energy and 27% improvement for energy efficiency (European Commission and Climate Action, 2014). Additionally, the EU energy policy has since then shifted to include “security of supply, sustainability and competitiveness (ECCE, 2017) within a single Internal energy market (See European Commision, 2014). In other words, both E.ON’s goals and EU goals aim towards encouraging energy efficiency, development of new and renewable forms of energy, and promoting the connection of energy networks. This illustrates an efficiency based process of internalization whereby E.ON helped both Germany and the UK to develop technological know-how within the renewable energy sector, alongside themselves (Rugman and Verbeke, 2003).
However, as the UK comes into terms with leaving the EU, which quadrant in the above framework will the new E.ON be placed into? Although there are uncertainties that are brought forward with Brexit, it can be argued that it will still be located on Rugman and Verbeke (2003) 4th quadrant as both home and host are still under strict targets to reach with regards to carbon emissions and sustainable energy. For example, the UK’s Climate Change act 2008 ensures that the net UK carbon account reaches 80% or lower than 1990 baseline for 2050 (HM Government, 2017). Interestingly so, as of July 2016 the Department of Energy & Climate Change (DECC), joined into the Department of Business, Energy & Industrial Strategy (BEIS) (see DECC, 2017). It can be argued that to secure future investments into the UK, the government have taken in issues of climate change and used it to increase innovation within the renewable energy industry.
Regardless of Brexit, this could be of value for E.ON as they can continue to develop their renewable energy product portfolio within the UK market. As long as the UK continues to link energy policies that support research and development (R&D) in renewable energy technology, innovation and market creation, E.ON can improve their positioning within the UK market (Lund, 2008). However, what would E.ON’s strategic approach to UK’s environmental and energy policy be in context to their new company strategy? The next framework that will be used to analyse this notion, would be through Rugman and Verbeke (2003) ‘MNE’s strategic approach to government policy’ a framework based on the resource-based approach to analyse E.ONs strategic move towards government policies during the turbulent moments caused from Brexit.
Figure 3 MNE’s Strategic Approach to Government Policy
Source 1 Rugman and Verbeke (2003)
Firstly, the Centre for Economic Performance (2016) report argues that as the UK is “one of the most highly regulated countries in the developed world”, it is unlikely that there will be major changes in regulations regarding renewable energies following Brexit. However, according to Booth et al (2015), UK Government Impact Assessment, the Renewable Energy Strategy costs outweigh the benefits, which could be of concern to E.ON. If the UK decides to scrap this regulation, it could have consequences to E.ON as the UK could become an unattractive market to invest for renewable energy. However, the UK government published the “Green Paper”, a new modern industrial strategy, which appeals to foreign investors by guaranteeing attractive policies to provide economic growth (GOV UK and HM Government, 2017). This paper focuses on setting out new plans of policies in areas or “pillars” related to E.ON such as science, research and innovation, infrastructure and affordable energy (see Industrial strategy, GOV UK and HM Government, 2017).
Secondly, the renewables obligation (RO) put in place April 2002, ensures that electricity suppliers generate 15% of electricity from renewables which lasts until 2026 (SEE E.ON, 2017d). Additionally, BEIS allocated an energy innovation fund alongside the government’s £50 billion finance support for firms that innovate in products and services that decarbonise the energy system (See BEIS & GOVUK (2017 and HM Government, 2017). Accordingly, E.ON should view UK government policies as exogenous whereby E.ON would work within set rules given by the UK government and as a recipient of E.ON’s FDI (Rugman and Verbeke, 2003). In this sense, it would be beneficial for E.ON to proceed with national responsiveness in accordance to their business to government interaction in the UK as this could provide future opportunities post-Brexit and avoid complexities (Rugman and Verbeke, 2003). This means that the new E.ON strategy would be suitable to benefit from national responsiveness in the UK energy industry and as a result be placed in the 2nd quadrant of fig 3 (Ibid, 2003).
Lastly, non-location bound (NLB) FSA refer to E.ON’s transferable resources and location-bound (LB) FSA refer to their non-transferable resources (Verbeke, 2009; Prahalad and Doz, 1987). E.ON’s firm specific advantages (FSA) are their owned renewable energy generator and network products, alongside their R&D capabilities that determines their competitive advantage (Caves, 1982; Hymer, 1976; Rugman and Collinson, 2012). In this sense, E.ON should consider how they could utilise both NLB FSA and LB FSA as a way to hold a competitive edge over their competitors in the UK industry and overcome foreignness liabilities (Zaheer, 1995). As a company that holds a high market share in the European Market (See Marketline, 2016b), it is viable for them to expand their presence in the UK renewable energy market once their FSA are strategically deployed.
In conclusion, although Brexit brings forth uncertainties and volatility within the UK market, the new E.ON’s strategy is viable and brings forward opportunities that can overcome the effects of Brexit. As explained through Rugman and Verbeke (2003) E.ON’s strategic perception of government policies is viewed as exogenous and the benefits of national responsiveness is a preferable choice as way to overcome Brexit uncertainties. Alongside this E.ON, Germany and UK illustrate a complementary consistency that further highlights the attractiveness of the UK renewable energy market. Moreover, the Collaboration game (Lampikoski et al., 2014) highlights a positive link in regards to technological advancement through partnerships between E.ON, institutions and NGOS. Finally, the clarity game (Lampikoski et al., 2014) further establishes E.ON energy as a game changer within the Industry, which in turn strengthens their opportunity of competing within the UK regardless of Brexit.
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