Fighting price wars is an art in China to defeat competition. The erstwhile successful solar energy company Suntech showed with a massive default, that strategy can turn against you, tells business analyst Ben Cavender in GlobalPost.
Analysts said Suntech’s business model, deliberately pushing down prices to capture larger market share despite narrower profit margins, contained the seeds of its own destruction.
“What (Suntech) has done is increase supply to the market so much, that they really almost can’t sell anything at a profit now,” said Ben Cavender, associate principal of China Market Research Group (CMR) in Shanghai.
Suntech recorded a net loss of $1.0 billion in 2011, from a profit of $237 million in 2010, according to company filings. The firm has yet to report financial results for 2012.
Once an investors’ darling, its New York-listed shares have plunged from a high of $90.00 in early 2008. They closed down 7.81 percent at $0.59 in New York on Tuesday.
“It is going to be difficult for them going forward,” Cavender added. “You might end up seeing a very different company down the road.”…
“Looking at a Chinese company as a potential investment, you really have to be a little more cautious… and decide whether the investment looks as good as it does on paper,” said Cavender of CMR.
More in Global Post.
Last summer Ben Cavender discussed the failures foreign companies make when trying to localized in China. Hear about the examples of Gap, B&Q, Dunkin Donut and IKEA.