Institutional Embeddedness and Firm Response to a Window of Opportunity: A Comparison of Newcomer Chinese and Incumbent German Solar PV Firms

Our study investigates the distinct difference in how the newcomer Chinese and incumbent German solar PV firms responded to a new policy- induced and market-driven window of opportunity. After 2004 when demand spiked due to favorable policy changes in Germany and other European countries, the new Chinese firms were much quicker than the established German firms to grasp the new market opportunity. Chinese firms in 2002 had no share of the global market, but gained nearly 50% by 2009. Our study seeks to link differences in responses to opening (and later closing) of a window of opportunity to national context. To this end, we are adapting Redding’s (2005) framework for business system analysis to uncover the cultural features on which a system’s formal institutions are based and, in turn, how those institutions shape the observed structure and behavior of a business system. In our empirical study, the systems being compared are the Chinese and German solar PV industries in two time periods: 2004-2008 in the market boom, and 2009-2012 when the market growth flattened. In the first period, the Chinese firms, as a group, had more new entrants, and increased their productions and capability more quickly than the German firms in exploiting the window of opportunity, although German firms also grew a lot. However, Chinese firms were less rationalizing when market growth slowed and developed significant overcapacity. We are finding significant differences in the nature of entrepreneurship and financing, economic incentives and rationality and government action to explain these important phenomena. The paper draws on publically available industry data, business reports of publically listed companies as well as interviews with former and active top-level managers from Chinese and German PV firms.