DRIVEN BY ECONOMIC GROWTH, INDUSTRIALIZATION and privatization, worldwide demand for primary energy could double by 2020 (em requiring one 500-megawatt power plant to be built every 3.5 days to meet that need. Much of this growth will occur in Asian countries, most notably China, Thailand, India, South Korea, and Indonesia. China alone is expected to increase electric generating capacity by 15,000 MW per year at a cost of about $15 billion annually.
International players such as ABB Energy Ventures, AES Corp., Enron, and most major oil companies have already gained a foothold and valuable experience in Asian power markets. Armed with strong cash flows from domestic operations, many formerly risk-averse U.S. utilities are now seeking to join the fray and capture some profits.
Although the opportunities are vast, competition is strong. Tight margins have increased barriers for U.S. firms. One common way to enter Asian markets is through formation of alliances with established Asian companies. These alliances allow U.S. companies to enter foreign markets with the added benefits of sharing resources and reducing risk.
Alliances are not without risk. Unlike mergers, where organizations assimilate into a single organization, joint ventures and alliances require an amorphous management structure. Intricate contracts, complex organizational changes and control shifts may result. Cultural differences between U.S. and Asian executives could exacerbate problems. Although differences in management style are commonly understood in high-tech and manufacturing industries, now is the first time utility executives have been faced with such issues.
An "alliance manager" can guide a utility through the process. Experienced in international energy and responsible for ensuring the alliance is properly structured, the effective manager must integrate the demands of managing a relatively unstructured organization, while understanding the demands of working across cultures.
Utility executives have interacted with plant manufacturers, architects, engineers and construction firms, consulting firms and fuel suppliers that are experienced in overseas markets. By riding the coattails of these energy industry affiliates, utility executives have opportunities to gain first-hand knowledge of how to deal with international alliances. For example, Duke's alliance with Fluor-Daniel is considered a strength that should allow the company to produce turnkey projects worldwide. Working with an established partner also can provide invaluable business contacts in a foreign country.
Lori Glauser is a consultant with Resource Data International Inc., an energy industry consulting and information management firm..R2
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