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Business strategies in sustainable energy

van den Buuse, D.J.H.M.

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Download date:19 Mar 2023

BUSINESS STRATEGIES
IN SUSTAINABLE ENERGY

DANIEL J.H.M. VAN DEN BUUSE

 BUSINESS STRATEGIES IN SUSTAINABLE ENERGY

Daniel J.H.M. van den Buuse

2
 BUSINESS STRATEGIES IN SUSTAINABLE ENERGY

ACADEMISCH PROEFSCHRIFT

ter verkrijging van de graad van doctor

aan de Universiteit van Amsterdam

op gezag van de Rector Magnificus

prof. dr. ir. K.I.J. Maex

ten overstaan van een door het College voor Promoties ingestelde commissie,

in het openbaar te verdedigen in de Aula

op woensdag 27 juni 2018, te 11:00 uur

door Daniel Jacobus Henderikus Marinus van den Buuse

geboren te Middelburg

3
Promotiecommissie:

Promotor: prof. dr. A. Kolk Universiteit van Amsterdam

Copromotor: dr. W. van Winden Hogeschool van Amsterdam

Overige leden: prof. dr. ir. A. Osseyran Universiteit van Amsterdam

prof. dr. J. Grin Universiteit van Amsterdam
prof. dr. R.C. Kloosterman Universiteit van Amsterdam
prof. dr. J.M. Pinkse University of Manchester
dr. R. Bohnsack Católica Lisbon

Faculteit: Economie en Bedrijfskunde

This research was supported by the Centre for Applied Research on Economics and Management, Amsterdam
University of Applied Sciences.

© 2018 Daniel J.H.M. van den Buuse

All rights reserved. No part of this publication may be copied, reproduced or transmitted in any form or any
electronic, mechanical, or other means, without the written permission of the author. The copyright of the
articles that have been published, has been transferred to the respective journals.

4
 BUSINESS STRATEGIES IN SUSTAINABLE ENERGY

TABLE OF CONTENTS

List of tables, figures and boxes 7

List of abbreviations and acronyms 8

CHAPTER 1. Introduction 11
1.1 Research questions, structure and methodology 12
1.2 Theoretical background 14
1.3 Empirical contexts 23
1.4 Overview of the chapters 25

CHAPTER 2. An exploration of smart city approaches by international ICT firms 29

2.1 Introduction 29
2.2 Smart city technologies and sustainable urban development 31
2.3 An international business perspective on firm strategies 34
2.4 Method and sample 37
2.5 Smart city approaches by international ICT firms 39
2.6 Discussion and conclusions 46

CHAPTER 3. Regionalization strategies of EU electric utilities 55

3.1 Introduction 55
3.2 The (semi)globalization and regionalization debate 57
3.3 Method and sample 60
3.4 Internationalization of EU electric utilities 63
3.5 Discussion and conclusions 72

CHAPTER 4. The development and commercialization of solar PV technology in

the oil industry 81
4.1 Introduction 81
4.2 Towards the diffusion of renewable energy technologies 82
4.3 Solar PV diffusion in the oil industry: a research model 85
4.4 Solar PV in the oil industry 90
4.5 The uncertain outlook of the oil industry’s commitment to solar PV 98
4.6 Conclusion and policy implications 99

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CHAPTER 5. In search of viable business models for development: sustainable energy in
developing countries 103
5.1 Introduction 103
5.2 The crucial role of energy in development 104
5.3 Financing and delivery models for renewable energy technologies 107
5.4 Methodology 111
5.5 Emergent RET business models 113
5.6 Discussion and conclusions 119

CHAPTER 6. Smart city pilot projects: exploring the dimensions and conditions of
scaling up 123
6.1 Introduction 123
6.2 Dimensions of scaling and smart city project types 125
6.3 Conditions and factors that affect scaling 127
6.4 Methodology 134
6.5 An illustration of scaling dynamics: three cases from Amsterdam 135
6.6 Discussion and conclusions 140

CHAPTER 7. Conclusions 145

7.1 Contributions of this dissertation in relation to research questions 145
7.2 Broader implications for the debate on business and sustainable energy 156
7.3 Limitations and opportunities for future research 159

References 167
English summary 189
Nederlandse samenvatting 195
Statements of co-authorship 197
Acknowledgements 199

6
 LIST OF TABLES, FIGURES AND BOXES

TABLES

Table 1.1 Overview of the chapters in the dissertation in relation to the sub-questions
Table 2.1 Firm presence in cities part of the GaWC inventory
Table 2.2 Assessment of strategic approaches by smart city technology suppliers
Table 2.3 Smart city statements of the ICT firms
Table 2.4 Overview of interviews on smart cities and firm strategies
Table 3.1 Overview of the electric utilities by geographic location, years, and regional orientations
Table 3.2 Regional (and EU sub-regional) orientations of the electric utilities
Table 3.3 Background information on the electric utilities
Table 3.4 Main geographic markets for the utilities in 2010
Table 3.5 Renewable energy activities for the utilities in 2010
Table 4.1 Oil firms’ investments and divestitures in solar PV
Table 5.1 Six questions that underlie a business model
Table 5.2 Some characteristics of the four companies
Table 5.3 Overview of interviews on business models for sustainable energy
Table 6.1 A typology for upscaling
Table 6.2 Scaling types and conditions
Table 6.3 Overview of interviews on smart cities and pilot projects
Table 7.1 Overview of the chapters in the dissertation
Table 7.2 Overview of the chapters in relation to sustainable energy production and consumption

FIGURES

Figure 4.1 Solar PV technology diffusion: a research model

Figure 5.1 Indicative positioning of some off-grid delivery and financing models

BOXES

Box 5.1 Renewable energy technologies for developing countries

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 LIST OF ABBREVIATIONS AND ACRONYMS

ARE Alliance for Rural Electrification

BOP Bottom/Base of the Pyramid
BP British Petroleum
CCS Carbon Capture and Storage
CO2 Carbon Dioxide
CSR Corporate Social Responsibility
DSE Decision Support Environment
EC European Commission
EIP-SCC European Innovation Partnership on Smart Cities and Communities
ERDF European Regional Development Fund
EU European Union
FSA Firm-Specific Advantage
GaWC Globalization and World Cities
GHG Greenhouse Gas
GIS Geographic Information System
GS Grameen Shakti
HPS Husk Power Systems
IB International Business
ICT Information and Communication Technology
IEA International Energy Agency
IRENA International Renewable Energy Agency
IoE Internet-of-Everything
IT Information Technology
M&A Mergers & Acquisitions
MLP Multi-Level Perspective
MNE Multinational Entreprise
MW Mega-Watts
NAFTA North American Free Trade Agreement
NGO Non-Governmental Organization
OECD Organisation for Economic Co-operation and Development
PV Photovoltaic
R&D Research & Development

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RBV Resource-Based View
REN21 Renewable Energy Policy Network for the 21st Century
RET Renewable Energy Technology
ROR Rest of the Region
ROW Rest of the World
SHS Solar Home System
SME Small and Medium-sized Enterprises
TEF Triple Embeddedness Framework
UK United Kingdom
UN United Nations
UNEP United Nations Environment Programme
US United States
WCED World Commission on Environmental Development
WHO World Health Organization
WRI World Resource Institute
WSSD World Summit on Sustainable Development

9
10
 CHAPTER 1: INTRODUCTION

Moving towards a more sustainable energy future is widely regarded as one the key challenges for the
21st century, given the negative economic, political, environmental, and social externalities associated
with fossil fuel dependence. The international diffusion of technologies which enable more
sustainable modes of energy production and consumption across the world is a central factor in this
respect. Related to energy production, this implies that major investments in renewable energy
technologies (RETs) are needed to replace fossil fuel-based technologies as a source for power
generation (Holdren, 2006; Jacobsson and Bergek, 2004; Jacobsson and Johnson, 2000). For energy
consumption, this primarily entails the widespread deployment of technologies which enable energy-
intensive economic activities to become more energy efficient (Herring, 2006; Herring and Sorrell,
2009; REN21, 2017). The need for an energy transition has been widely recognised in general (Geels,
2011a; 2018; Grin et al., 2010; Smith et al., 2010; Van den Bergh et al., 2011; Wilson, 2018; Wilson and
Tyfield, 2018), and the importance of business as an actor in this regard has been often emphasised
(Farla et al., 2012; Geels, 2014; Markard et al., 2012).
Interestingly, international business and management scholars have recently stressed the
importance of conducting phenomenon-based research to explore business strategies in response to
‘grand challenges’ in society, including the global energy transition (Buckley et al., 2017; Doh, 2015;
Kolk, 2016). Multinational enterprises (MNEs), as crucial and powerful players in addressing such
global issues, have received considerable attention with regard to their corporate social responsibility
(CSR) (for a recent comprehensive review, see Pisani et al., 2017) as well as their strategic responses
to environmental policy in general (Christmann, 2004; Christmann and Taylor, 2001; Dowell et al.,
2000; Rugman and Verbeke, 1998; 2000; 2001) and to a topic such as climate change in particular
(Kolk and Levy, 2001; Kolk and Pinkse, 2004; 2005; 2008; Levy and Kolk, 2002; Pinkse and Kolk, 2009,
2012). Despite this existing literature, review articles in the field of international business and
management have emphasized the need for more research into the analysis of energy and the energy
transition (Kolk, 2016; Kolk et al., 2017), as strategies in response to sustainable energy have remained
relatively underexplored. This dissertation examines the strategies of firms in developing and
marketing technologies for sustainable energy production and consumption in multiple
heterogeneous contexts, with specific attention for the role of MNEs.
The remainder of this chapter proceeds as follows. The next section introduces the research
question and sub-questions, and provides an overview of the structure of the dissertation as well as
the overall methodology used. Section 1.2 gives a synopsis of the theoretical perspectives from the
business and management literature which are adopted in the chapters, and identifies opportunities
for each of these perspectives to contribute to insight into business responses to the diffusion of

11
sustainable energy in society. This is followed by a specification of the empirical research contexts for
sustainable energy production and consumption in section 1.3, and an assessment of the importance
of addressing business strategies in each context. Finally, section 1.4 introduces the chapters in the
dissertation.

1.1 Research questions, structure and methodology

The dissertation adopts a phenomenon-based research approach, which “begins with a strong
research question related to a contemporary, real-world phenomenon and then identifies a theory or
set of theories that can inform that reality” (Doh 2015, 609). This dissertation explores business
strategies in heterogeneous contexts for sustainable energy, informed by business and management
theories, and seeks to shed light on the following overall question:

Research question: How does business strategically respond to the diffusion of technologies for
sustainable energy production and consumption?

This research question is divided into two interrelated sub-questions, which will be explained next.

Sub-question A: How do MNEs strategically address the diffusion of renewable energy technologies
for energy production and of energy efficiency technologies for energy consumption?

This sub-question is examined in chapters 2, 3, and 4, which each conduct an organizational-level,

industry-specific analysis, focused on MNEs with established positions in their respective industries.
Chapter 2 explores how firms in the information and communication technology (ICT) industry
strategically approach the market for smart city technologies, and assesses their role in addressing
energy consumption in cities and urban areas on a global scale. Chapter 3 focuses on electric utilities
with established positions in the European electricity market, and examines how technology-specific
investments in power generation technologies are shaped by transformative changes in the
institutional environment. Chapter 4 addresses the strategic investments of European firms in the oil
industry in developing and commercializing RETs to diversify their power generation portfolio, taking
both internal resources and capabilities and external industry dynamics into account.

Sub-question B: How does business address challenges related to the scalability, affordability, and
accessibility of solutions for sustainable energy production and consumption?

12
This second sub-question is addressed in chapters 5 and 6, considering respectively rural and urban
settings. Chapter 5 focuses on access to energy in developing countries, and explores business models
of entrepreneurial firms to introduce RET-based solutions in rural areas without access to the national
electricity grid. Chapter 6 identifies which dimensions and conditions affect the potential for urban
energy efficiency solutions to be scaled up beyond pilot projects, and examines how business-led
approaches can create a broader environmental and social impact beyond the local level. Figure 1.1
provides an overview of the sub-questions and the related empirical chapters in the dissertation, and
also shows the introductory and concluding chapters.

Introduction of
theoretical perspectives Chapter 1: Introduction
and empirical contexts

Chapter 2: An exploration of smart city approaches by

international ICT firms
Articles in the dissertation

Sub-question A
Chapter 3: Regionalization strategies of European Union electric
utilities

Chapter 4: The development and commercialization of solar PV

technology in the oil industry

Chapter 5: In search of viable business models for development:

sustainable energy in developing countries
Sub-question B
Chapter 6: Smart city pilot projects: exploring the dimensions and
conditions of scaling up

Conclusions on business
strategies in response to Chapter 7: Conclusions
sustainable energy

Table 1.1: Overview of the chapters in the dissertation in relation to the sub-questions

Methodology
The research methodology adopted in the dissertation is qualitative in nature, and based on a multiple
case study design for empirical chapters, given that it is particularly well-suited to study and
understand a phenomenon within its real-life context (Eisenhardt, 1989; Yin, 1994). Given that each
of these chapters is written as an article, with four of them already published in academic journals,
the method section in each chapter provides more details on the specificities of the case selection and
data collection process. Here a generic, brief description is given in this introduction.

13
For the three chapters related to sub-question A, the case study selection process was based on the
identification of leading MNEs in their respective industries, which have developed sizable activities
in developing and marketing technologies for sustainable energy production and consumption. For
chapter 2, ICT firms with leading positions as global smart city technology suppliers were selected as
case studies in this way. For chapters 3 and 4, the largest firms in the European electricity and oil
industry based on annual revenues were selected as case studies, thus exploring strategic approaches
to sustainable energy of firms with incumbent positions within each industry. For the two chapters
related to sub-question B, cases were selected based on their ability to illustrate how market-based
approaches and mechanisms enhance the scalability, accessibility, and affordability of sustainable
energy solutions in practice, and on the opportunities to obtain access to representatives of focal
organizations to conduct interviews. In this way, entrepreneurial firms in Asia were selected and
contacted based on web-based sources for chapter 5, and were visited to conduct interviews as part
of a field research trip in this region. For chapter 6, representatives of partner organizations involved
in pilot projects part of the Amsterdam Smart City network were approached for interviews, based on
existing contacts of the Amsterdam University of Applied Sciences within this network.
Several data collection methods were adopted for each chapter, in order to establish data
triangulation by drawing on multiple sources of evidence (Yin, 1994). For chapters 2, 5, and 6, data
was collected from documentation (annual reports, corporate social responsibility reports, and issue-
specific publications) combined with semi-structured interviews. All interviews were conducted face-
to-face with firms in the Netherlands for chapters 2 and 6, and in Thailand, Cambodia, and Laos for
chapter 5. Due to logistic reasons, several interviews for chapter 5 were also conducted via Skype calls
with representatives of organizations in other Asian countries, which were not visited for face-to-face
interviews. For chapters 3 and 4, data was also collected from similar sources of documentation,
combined with newspaper articles from reputable sources retrieved from the LexisNexis database,
including the New York Times, Wall Street Journal, Washington Post, Guardian, Economist, and Time
magazine. This allowed for data triangulation in all case studies conducted in the five chapters.

1.2 Theoretical background

The role of business in the transition to sustainable energy

In the broader context of the societal transition towards more sustainable energy production and
consumption, scholarly work in the field of sustainability transitions has yielded theoretical as well as
empirical insights. Markard et al. (2012, 956) state that “a transition involves far-reaching changes
along different dimensions: technological, material, organizational, institutional, political, economic,
and socio-cultural”, and “involve a broad range of actors and typically unfold over considerable time-

14
spans (e.g. 50 years and more)”. The Multi-Level Perspective (MLP) (Geels, 2002; 2004) has been
influential in conceptualizing how transition processes unfold in socio-technical systems. The MLP
characterizes socio-technical systems as a nested hierarchy model consisting of landscapes (macro-
level), socio-technical regimes (meso-level), and technological niche environments (micro-level), in
which transition processes emerge over time as a result of landscape-regime-niche level interactions
(Geels, 2002; 2004). Other publications have provided more detailed insight into different trajectories
and pathways for transition processes in socio-technical systems (Geels, 2005a; Smith et al., 2005;
Geels and Schot, 2007; Raven, 2007; Smith, 2007; Smith and Raven, 2012), and the creation and
management of ‘shielded environments’ to develop sustainable technologies away from regime-level
pressures (Kemp et al. 1998; Raven et al., 2010; Rotmans et al., 2001; Schot and Geels, 2008).
Empirically, these theoretical perspectives have been applied to historic transition processes
in a broad range of industries, such as the transition from horse-drawn carriages to automobiles
between 1860–1930 (Geels, 2005b), the development of the Dutch electricity system between 1960–
2004 (Verbong and Geels, 2007), the transformation of American factory production between 1850–
1930 (Geels, 2006), the developments of the British coal industry between 1913–1967 (Turnheim and
Geels, 2013), and a number of other contexts (Brown et al., 2013; Geels, 2005c; Geels, 2007; Geels
and Raven, 2006; 2007; Raven and Geels, 2010). These empirical studies predominantly provide a
narrative account of a transformative change in a broad range of industries, which spans over several
decades, and mostly focus on a national context in their geographic scope (Markard et al., 2012). In
addition, several publications have specifically addressed the emergence of RETs in relation to energy
sector transformation (Jacobsson and Bergek, 2004; Jacobsson and Johnson, 2000; Jacobsson and
Lauber, 2006).
While these theoretical and empirical contributions have been instrumental in
conceptualizing how transition processes unfold in society, examining the influence of actors in
shaping these processes has been identified as a key area for further research (Farla et al., 2012). To
examine actor strategies in this realm, Farla et al. (2012, 992) pose the following question: “what
strategies do actors adopt to shape sustainability transitions and what resources do they mobilize and
deploy in the realization of these strategies?”. By making investments in technologies which enable
more sustainable energy production and consumption (Wüstenhagen and Menichetti, 2012), firms
can be central actors in the creation of an industry around a novel technology (Bohnsack et al., 2016),
and in the wider process of energy transition in society. In this context, the Triple Embeddedness
Framework (TEF) (Geels, 2014) has provided an initial theoretical conceptualization of the co-
evolution between firms and their environments. It identifies interactions between ‘firms-in-
industries’ and their environments as bi-directional, which can be ‘outside-in’ (i.e. from environments

15
towards firms-in-industries) and ‘inside-out’ (i.e. strategic responses from firms-in-industries towards
the environments). Geels (2014, 268) states in this respect that “firms-in-industries not only adapt to
external pressures but also strategically attempt to shape their environments”. Empirical work which
explores the strategic approaches of firms to the diffusion of technologies for sustainable energy
production and consumption, can shed more light on the role of business in sustainability transitions.
This dissertation aims to provide further insight into the internal and external factors which
shape the strategic responses of firms to their environments, and offer a more fine-grained analysis
of business strategies in sustainable energy. The studies in the dissertation are rooted in multiple
perspectives from the business and management literature. Related to sub-question A, the strategic
approach of MNEs to the diffusion of technologies for sustainable energy production and consumption
will be studied from two interrelated perspectives: (i) an international business perspective on the
geographic expansion of firms, and (ii) a strategic management perspective on technological
innovation. Related to sub-question B, two perspectives are adopted to explore business-led and
market-based approaches to enhance the scalability, affordability, and accessibility of sustainable
energy solutions: (iii) a business model perspective to explore the characteristics of market-based
approaches to sustainable development, and (iv) a management perspective on the ability of firms to
scale up sustainable energy solutions beyond pilot projects. Each of these organizational-level
perspectives will be discussed in more detail below.

Theoretical perspectives from the business and management literature

Related to sub-question A, an international business perspective is adopted to explore MNE strategies
in RETs for sustainable energy production, and smart city technologies for sustainable energy
consumption. A central theme in this literature is the need for MNEs to balance environmental
pressures for global integration and the effective coordination of activities distributed across the
firm’s international network, with responsiveness to the demands and conditions of the
heterogeneous host environments in which the firm is embedded (Bartlett and Ghoshal, 1989;
Devinney et al., 2000; Johnson; 1995; Prahalad and Doz, 1987; Roth and Morrison, 1990; Taggart,
1997). This embeddedness in host environments can enable firms to build firm-specific advantages
(FSAs), which can be shared throughout the MNE network to achieve sustained, profitable
international growth (Verbeke and Asmussen, 2016). These FSAs are rooted in a firm’s proprietary
knowledge and capability to control, coordinate, and manage its assets over geographic distances
(Rugman and Verbeke, 1992; 2003). When FSAs can be integrated and leveraged throughout the MNE
network (McCann and Mudambi, 2005; Mudambi 2002; Mudambi and Swift, 2011), they can provide
a potential basis for building competitive advantages. Meyer et al. (2011, 241) state in this respect

16
that the “ability to create, transfer, recombine, and exploit resources in multiple contexts is the
rationale for the existence of the MNE”, which enables firms to “tap into resources and capabilities
from multiple local contexts and integrate and leverage them to create a range of competitive
advantages”. The degree of liability of foreignness experienced by firms is a key factor in this respect.
This implies that firms incur costs outside their home market, because of unfamiliarity with the
economic, political and cultural peculiarities of the host environment, and the need to coordinate
activities across geographic locations (Zaheer, 1995). When firms experience a lower degree of liability
of foreignness in their international activities, FSAs can be exploited throughout the MNE network
more efficiently (Rugman and Verbeke, 2007).
From this perspective, the location choice of MNEs as part of the international strategies
impacts their ability to integrate and leverage FSAs from multiple local contexts. Given that MNEs
purposively locate their activities in centres of economic agglomeration within countries (Beugelsdijk
and Mudambi, 2013; Taylor et al., 2014), the concept of ‘global cities’ (cf. Sassen, 2000; 2005) has
been adopted to explain how location choice is associated with the degree of liability of foreignness
experienced by firms at the sub-national level. Global cities are characterized by three distinctive
features, including a high degree of global interconnectedness, the prevalence of a cosmopolitan
environment, and the widespread availability of advanced producer services, making them deeply
connected and interlinked (Sassen, 2000; 2005). Goerzen et al. (2013) identify that MNEs have a strong
inclination to locate activities in global cities, which lowers the degree of liability of foreignness that
firms experience in host environments outside their home market (Mehlsen and Wernicke, 2016).
Related to sub-question A, an international business perspective can shed light on the potential for
MNEs to develop FSAs in technologies for sustainable energy, from their embeddedness in multiple
local contexts. Chapter 2 examines how, and to which degree, ICT MNEs can potentially build
competitive advantages as international smart city technology suppliers, which are developed through
their smart city engagements in a large number of cities and urban areas globally.
In addition, the influence of the region in shaping the international expansion of MNEs has
emerged as a major theme in the international business literature (Rugman and Oh, 2013). In this
literature, the region is supra-national in nature, and focuses on how economic and political
integration, stemming from multilateral trade agreements such as the European Union (EU) and the
North American Free Trade Agreement (NAFTA) (Rugman and Verbeke, 2004; 2005), influence the
international growth strategies of MNEs. Rugman and Verbeke (2004; 2005) identified that the
geographic dispersion of MNEs is largely concentrated in their home triad region (i.e. EU, NAFTA, or
Asia) rather than globally (Rugman, 2001; Rugman and Hodgetts, 2001). This is explained by regional
economic, political, and cultural coherence, which drives firms towards intra-regional rather than

17
inter-regional expansion (Asmussen, 2009). Regional institutional coherence decreases the liability of
foreignness experienced by MNEs in their international expansion within the region (Rugman and
Verbeke, 2007; Kudina, 2012), and offers the potential for lower intra-regional investment costs
and/or greater efficiency in the development and exploitation of non-location-bound FSAs (Rugman
and Verbeke, 2004, 2005; 2008c). Rugman and Verbeke (2004, 16) note in this respect that “most
large MNEs have an average of 80% of total sales in their home triad”, and that “strategies of MNEs
are embedded in - and co-evolve with - the broader competitive, organizational and institutional
contexts at the regional level”. This regionalization perspective of the firm has been well-established
in multiple product- and service-oriented industries (Collinson and Rugman, 2008; Filippaios and
Rama, 2008; Gardner and McGowan, 2010; Oh and Rugman, 2006; Rugman and Collinson, 2004;
Rugman and Girod, 2003; Rugman and Verbeke, 2008b), and applies to sustainability services as well
(Kolk and Margineantu, 2009). In exploring the strategies of MNEs in the diffusion of sustainable
energy, this implies that the regional institutional context in which an MNE is embedded can be an
important factor which shapes their growth strategy in a particular industry (Verbeke and Asmussen,
2016). Chapter 3 studies how the international growth strategies of European electric utilities are
influenced by factors in the (supra-)national institutional environment (i.e. the EU and their home
country), taking both fossil fuel-based technologies and renewable energy for power generation into
account.
In addition to the international business perspective, a strategic management perspective is
adopted in relation to sub-question A, to examine the investments of MNEs in sustainability-oriented
technological innovation from a resource-based view of the firm (Wernerfelt, 1984; 1995; Peteraf,
1993; Barney, 1991; 2001a; 2001b). This provides insight into the role of a firm’s resources and
capabilities shape their technology-specific investments in sustainable energy, and explains how firm-
specific factors enable them to build competitive advantages in an industry context. It includes “all
assets, capabilities, organizational processes, firm attributes, information, knowledge”, which “enable
the firm to conceive of and implement strategies that improve its efficiency and effectiveness” (Barney
1991, 101). This is closely related to the concept of FSAs discussed previously (Kolk and Pinkse, 2008),
which is adopted in the international business literature, and consists of a firm’s proprietary
knowledge and capability to control, coordinate, and manage its assets over geographic distances
(Rugman and Verbeke, 1992; 2003). A strategic management perspective can shed light on the
investment motives of MNEs in sustainability-oriented technological innovations, embedded in the
broader discussion on incumbent firms and incremental/radical innovation. The literature suggests
that incumbent firms in an industry are inclined to engage in incremental innovation, in order to
sustain and optimize the performance of existing technologies, rather than investing in more radical

18
and disruptive innovations which can potentially diminish the value of existing resources and
capabilities (Anderson and Tushman, 1990; Baumol, 2002; Bower and Christensen, 1995; Danneels,
2004; Hill and Rothaermel, 2003; Tushman and Anderson, 1986). Given that power generation sources
are controlled by a relatively small number of incumbent firms in the energy industries, and that the
uptake of RETs for power generation is crucial to diminish fossil fuel dependence (Holdren, 2006;
Unruh, 2000; 2002), this provides an internally oriented research lens to study MNEs and their
sustainable energy investments. The strategic management perspective is adopted to explore the
development and commercialization of solar photovoltaic (PV) technology by oil firms in chapter 4.
Related to sub-question B, a management perspective is adopted to explore how business-led
and market-based approaches can enhance the scalability, accessibility, and affordability of solutions
for sustainable energy production and consumption. It focuses on contexts which have historically
relied on donor funding and subsidization from (non)governmental organizations (see section 1.3 for
a further specification of these contexts). Scaling up sustainable energy solutions independent of
donor funding and subsidization is pivotal for their long-term diffusion in society, and to create a wider
environmental and social impact. The World Bank (2005, 16) notes in relation to upscaling that
“implicit in the concept of scaling up is the need to go beyond business as usual, to embrace new
technologies, new institutional arrangements, and new approaches”. Hartmann and Linn (2008, 8)
complement this by stating that upscaling is about “expanding, adapting and sustaining successful
policies, programs or projects in different places and over time to reach a greater number of people”.
While scaling up sustainable energy solutions without support of donor funding could make them
more accessible and affordable on a larger scale, multiple economic, regulatory, and technological
complexities associated with upscaling processes make this a challenging endeavour. Firms therefore
have an important role in this context. By developing business-led and market-based approaches to
upscaling, firms can potentially contribute to the diffusion of sustainable energy solutions in an
economically viable manner.
In this context, the business model perspective is adopted in relation to sub-question B to
examine how market-based approaches can stimulate the wider diffusion of sustainable energy
solutions, independent from donor funding and subsidization. Given that “business models seek to
explain both value creation and value capture” (Zott et al. 2011, 1020), it provides an actor-centric
lens to analyse the core characteristics of business-led approaches in this realm. This contributes to
making these solutions accessible and affordable to a wider audience, in an economically viable
manner. The business model perspective has been widely adopted related to sustainability issues
(Boons and Lüdeke-Freund, 2013; Boons et al., 2013; Lüdeke-Freund, 2009; Roome et al., 2016;
Schaltegger et al., 2016; Schaltegger et al., 2012), including electric vehicles (Bohnsack et al., 2014;

19
Christensen et al., 2012; Kley et al., 2011), renewable energy (Gabriel and Kirkwood, 2016; Matos and
Silvestre, 2013; Richter, 2013; Wadin et al., 2017), and how to reach consumers at the bottom/base
of the pyramid (BOP) (Bittencourt Marconatto et al., 2016; Kolk et al., 2014; Palomares-Aguirre et al.,
2017). As exemplified by these studies, the business model perspective can provide a framework to
analyse how firms create and capture value. Firm-specific components which contribute to value
creation may include the firm’s customer value proposition, key resources and processes, profit/cost
structure, and type of investment model (Eyring et al., 2011; Morris et al., 2005; Shafer et al., 2005),
and provide “a representation of a firm’s underlying core logic and strategic choices for creating and
capturing value within a value network” (Shafer et al. 2005, 202). This can provide an actor-centric
perspective on the opportunities for market-based approaches to create economic, environmental,
and social value, and ascertain how this contributes to enhance the scalability, affordability, and
accessibility of sustainable energy solutions. The business model perspective will be applied in chapter
5, to examine how entrepreneurial firms are able to develop and market RET-based off-grid solutions
to establish access to energy in developing countries.
In addition, a management perspective on upscaling can shed light on the factors which
enable firms to scale up technological innovations beyond pilot projects, and thereby contribute to
the wider diffusion of sustainable energy solutions. Three factors stand out in this respect. First, firms
need complementary resources and capabilities for both exploration and exploitation activities, to be
able to scale up sustainable energy solutions. Explorative activities, such as research and development
(R&D) activities to develop novel technological innovations, require different resources and
capabilities than the exploitation activities aimed to commercialize technological innovations. Firms
need to have an ambidextrous ability to simultaneously pursue exploration and exploitation activities
(March, 1991), and manage both effectively by adopting a balanced approach (Andriopoulos and
Lewis, 2009; Lavie and Rosenkopf, 2006; Lavie et al., 2010; Raisch and Birkinshaw, 2008; Raisch et al.,
2009). Second, prospects to achieve economies of scale, which lead to lower unit costs because fixed
costs can be spread out over a larger volume (O’Sullivan et al, 2003), are key to upscaling. Firms
inherently have commercial incentives to scale promising technological innovations, given that their
external environment is shaped by market-based mechanisms, while (non)governmental
organizations can have a tendency “to move from one new idea to the next, from one project to
another” (Hartman and Linn 2008, 19), without sufficiently scaling up existing solutions. Third,
upscaling processes are enabled by knowledge transfer between locations and departments (Du
Plessis, 2007; Foos et al., 2006; Seidler-De Alwis and Hartmann, 2008; Tamer Cavusgil et al., 2003),
which can be facilitated by internal knowledge sharing mechanisms. For MNEs, the efficient
organization of knowledge flows enables firms to exploit local knowledge, by acting as an

20
intermediary, integrator, and facilitator of knowledge sharing (McCann and Mudambi, 2004; 2005;
Mudambi, 2002). Alongside an ambidextrous approach to exploration and exploitation, and the
prospects of economies of scale, knowledge sharing facilitates firms in enhancing the scalability,
accessibility, and affordability of sustainable energy solutions. This management perspective will be
adopted in chapter 6, to study trajectories for scaling up sustainable energy solutions beyond pilot
projects.

Towards insights into firms as actors in sustainability transitions

These business and management perspectives can shed more light on the role of firms as actors in the
broader transition towards more sustainable energy production and consumption. Related to sub-
question A, the strategic management and international business literature can elucidate how internal
and external factors which impact MNE strategies in sustainable energy, and explain how these factors
influence technology-specific investments of MNEs. Geels (2014) identifies that incumbent firms can
influence sustainability-oriented transition processes by developing and marketing radical
technological innovations, but can be reluctant to do so because of sunk investments in existing fossil
fuel-based technologies, and the risk of potentially disrupting existing resources and capabilities (cf.
Tushman and Anderson, 1986). Unruh (2000, 817) refers to the concept of ‘carbon lock-in’ in this
respect, which implies that “industrial economies have become locked into fossil fuel-based
technological systems through a path-dependent process driven by technological and institutional
increasing returns to scale”, which “arises through a combination of systematic forces that perpetuate
fossil fuel-based infrastructures in spite of their known environmental externalities and the apparent
existence of cost-neutral, or even cost-effective, remedies”. Erickson et al (2015) note in this respect
that carbon lock-in is greatest for coal power plants, gas power plants, and oil-based vehicles, based
on an analysis of major energy-consuming assets in the power, buildings, industry, and transport
sectors. Exploring how firm-specific resources and capabilities influence the strategic approach to
sustainable energy, focused specifically on firms with established positions in the energy industry, can
provide insight into their role in the widespread diffusion of novel technologies (Geels, 2002; 2004).
In addition, the strategic management and international business literature can also shed light
on the potential role of firms from non-fossil fuel industries to contribute to more sustainable energy
production and consumption. Erlinghagen and Markard (2012) identify that firms from the ICT
industry can be particularly relevant catalysts for systemic transformation in the energy sector, based
on their analysis of smart grid projects in Europe. Erlinghagen and Markard (2012) state in this respect
that “incumbent firms from the ICT sector have gained influence and drive transformation through
the creation of variety, in terms of technology, business models and value chains”, and that

21
incumbents from the energy sector “have recently acquired many start-ups specialized in ICT
technology and thus expanded their competence base” as a strategic response (Erlinghagen and
Markard 2012, 895). Similarly, Geels (2018, 225) notes that a transition in electricity production goes
beyond the deployment of RETs for power generation, and depend on “complementary innovations
in electricity networks and demand” as well, including smart grids, energy storage, and network
expansion. This shows that ICT firms can have an impact on transformative change in the energy
industry, based on exploiting firm-specific resources and capabilities in developing and marketing ICT-
based network and infrastructure solutions. Geels (2014, 261) mentions in this context that the
accumulation of external pressures can stimulate firms with established positions in an industry “to
overcome lock-in mechanisms and reorient towards more radical innovations”, and consequently can
have a potentially positive influence on the widespread diffusion of novel technologies for sustainable
energy production and consumption.
Furthermore, the international business perspective can show how external factors, related
to the (supra-)national institutional environment in which firms are embedded, shape the investments
in sustainable energy of MNEs as part of their internationalization strategies. The European electricity
market provides an interesting regional context in this respect, given that it has been fundamentally
reshaped over the last two decades by a process of market liberalization, and the EU’s aim of
establishing an European internal electricity market (Meeus et al., 2005). Institutional differences
between countries continue to exist at the national level, because market liberalization is incomplete
in multiple European countries (Joscow, 2008). A regionalization perspective on the
internationalization patterns of MNEs the European electricity industry can explain how regional
institutional coherence impacts the profitability, growth, and survival of these firms (Rugman and
Hodgetts, 2001; Rugman and Verbeke, 2004; 2005). Related to investments in power generation
technologies, this can explain how differences in home-country public policies for renewable energy
can influence firm-specific investments in RETs. Specifically, it can show how favourable public policies
can provide incentives for MNEs to increase their sustainable energy investments in their home
market, and leverage FSAs built up in this process for their international expansion (Rugman and
Verbeke, 2007).
Related to sub-question B, the business and management literature can provide an actor-
centric perspective on the ability of firms to develop and scale up sustainable energy solutions in
contexts which have historically relied on donor-funded projects and subsidized activities. In
sustainability-oriented transition processes, the wider diffusion of technological innovations from
‘niche environments’ is a central tenet (Geels, 2002; 2004). These environments are characterized as
‘incubation rooms’ or ‘protected spaces’ for experimentation and early adoption of technological

22
innovations (Geels, 2005a; Kemp et al., 1998; Smith and Raven, 2012), and can facilitate the market
formation of radical, potentially disruptive innovations (Carvalho, 2014). Findings from the studies
related to sub-question B can shed light on the potential for novel business models and market-based
approaches to enable the wider diffusion of technological innovations in an economically viable
manner. This provides an actor-centric perspective on how business responses to sustainable energy
can influence (i.e. stimulate or hinder) the wider diffusion of sustainable energy solutions, and thereby
enhance their environmental and social impact. This perspective complements existing
conceptualizations of transition trajectories and pathways in the sustainability transitions literature
(Geels and Schot, 2007; Raven, 2007; Smith et al., 2005). Given that “actor-related patterns are
important building blocks to understand accelerations and slowing down in diffusion and
breakthrough” (Geels 2005a, 692), this contributes to further insight into how transition processes
towards sustainable modes of energy production and consumption unfold in society.

1.3 Empirical contexts

This dissertation will apply perspectives from the business and management literature identified in
section 1.2 to multiple heterogeneous contexts which are important in the broader transition towards
a sustainable energy future. Related to sustainable energy production, this includes the centralized
grid-connected application of RETs for power generation in the energy industries, to diversify their
portfolio away from fossil fuel-based technologies, and the decentralized off-grid application of RETs,
to establish access to energy in developing countries. For sustainable energy consumption, this entails
the application of ICT-based solutions (i.e. smart city technologies) to address resource efficiency in
highly energy-intensive contexts. Both renewable energy production and efficient energy
consumption are central to a sustainability-oriented transition process, as reflected in sustainable
energy targets set by intergovernmental organizations. The EU’s 20/20/20 targets for sustainable
energy are illustrative in this respect, as they stipulate a 20% cut in greenhouse gas (GHG) emissions
from 1990 levels, a 20% share of energy produced from renewable energy sources, and a 20%
improvement in energy efficiency by 2020. Each context is discussed in more detail below.
To move towards more sustainable energy production, the diversification of power generation
sources away from fossil fuel-based technologies is a central challenge (Holdren, 2006; Jacobsson and
Johnson, 2000; Jacobsson and Bergek, 2004). A wide variety of RETs has become available to diversify
energy supply by replacing fossil fuel-based power generation (Gross et al., 2003), including solar PV
technology, onshore and offshore wind power, biomass, and geothermal energy. Global investments
in RETs amounted to US$241.6 billion in 2016, and the installed capacity of all modern RETs combined

23
(excluding traditional biomass) accounted for 10.2% of final energy consumption (REN21, 2017).
Multiple RETs, including wind power and solar PV technology, have reached economic
competitiveness with fossil fuel-based technologies (World Economic Forum, 2016). Overall,
investments in RETs for power generation outpaced fossil fuel-based technologies in 2016, and
accounted for more than 55% of global investments in newly installed power generation capacity
(UNEP, 2017). Firms with established positions in the energy industry have a central role in the
diffusion of RETs, related to their technology-specific investments to diversify power generation
portfolios. Their large financial investments gives them major decision-making power over the
diversification of energy production, and thus the broader diffusion of RETs. The empirical sections of
chapters 3 and 4 therefore explore business strategies and investments of energy firms in grid-
connected RETs, and assess their contribution to the diffusion of technologies for sustainable energy
production in the energy industry.
In addition to grid-connected RETs for energy production, the decentralized off-grid
application of RETs to establish access to energy in developing countries forms another important
context for the diffusion of sustainable energy. While grid-connected electricity is oftentimes available
in urban areas, a combination of financial, technological, and organizational challenges hinder the
extension of the electricity grid to all rural parts of a country (ARE, 2008). It is projected that
approximately 1.2 billion people will remain without electricity in 2030 (IEA, 2010), with 80% of these
people living in rural areas (ARE, 2008). Given that access to clean and reliable sources of energy is an
essential condition for social and economic development (Biswas et al., 2001; Davis, 1998; Dincer,
2000; Sagar, 2005; Sharma, 2006), developing economically viable solutions to establish decentralized
off-gird electrification beyond the reach of the electricity grid is important for sustainable
development. A diverse range of RET-based solutions has become available in this respect, including
systems based on solar, wind, hydro and hybrid technologies (ARE, 2008; REN21, 2010). This creates
opportunities to address access to energy through RET-based power generation, as an alternative to
extending the electricity grid powered by centralized fossil fuel-based power plants. While donor-
funded projects by international organizations have historically been the dominant paradigm in this
realm, the importance of market-based approaches to achieve long-term sustainable development
has been increasingly recognized by academics, practitioners, and international organizations. Yet,
Chesbrough et al. (2006) note that many technologies developed with the intention to be
implemented in developing countries did not achieve economic viability, or remained limited to
charitable distribution programmes of (inter)national donor organizations. Embedded in the broader
debate on private sector development to achieve long-term sustainability, the empirical section of

24
chapter 5 explores business strategies for the diffusion of off-grid, RET-based solutions for access to
energy in rural areas in developing countries.
Related to more sustainable energy consumption, the deployment of technology-enabled
solutions to achieve energy efficiency in cities is a principal challenge, given that cities account for
approximately 60% to 80% of energy consumption and carbon emissions (UNEP, 2011), making them
the most energy-intensive contexts globally (Grimm et al., 2008). The process of urbanization
combined with population growth will intensify urban energy consumption even further in the
decades to come. The number of people living in cities and urban areas is expected to grow from 3.6
billion at present towards approximately 6.3 billion in 2050 (UN, 2009), while population growth
projections for 2050 range from 9.6 billion people in a medium-variant scenario, to 10.9 billion people
in a high-variant scenario (UN, 2013). In order to address sustainability challenges related to urban
energy consumption, a large number of ICT-based solutions has been developed and marketed in
recent years, collectively labelled as smart city technologies. These technologies enable city
governments to address urban sustainability issues, improve the efficiency of urban services, and
contribute to the economic competitiveness and liveability of their cities (EU, 2014; Hollands, 2008;
Townsend, 2014). Carvalho et al. (2013, 5) observe that cities and urban areas are increasingly
important in issues related to energy and climate change on high-profile international networks as
well as in local-level initiatives, and thereby provide “key places for experimentation, early adoption,
market formation and social legitimization of new energy solutions”. The growing interest from both
public and private stakeholders in smart cities has resulted in a proliferation of smart city initiatives
and pilot projects globally, and has created a market for smart city technologies which is expected to
grow in volume from US$400 billion to US$1.5 trillion by 2020 (Deloitte, 2015). As part of the emergent
phenomenon of smart cities (Albino et al., 2015; Allwinkle and Cruickshank, 2011; Ahvenniemi et al.,
2017; De Jong et al., 2015; Gil-Garcia et al., 2015; Höjer and Wangel, 2015), the empirical sections of
chapters 2 and 6 explore business strategies for the diffusion of smart city technologies to address
urban energy consumption, which contributes to sustainable development in cities and urban areas.

1.4 Overview of the chapters

This dissertation consists of five empirical chapters, which are coupled with the sub-questions
presented in section 1.1. Chapter 2, entitled ‘An exploration of smart city approaches by international
ICT firms’, examines how firms in the ICT industry strategically respond to the emergence and spread
of smart city technologies to address energy efficiency in cities and urban areas. The chapter provides
an overview of existing scholarly work on smart cities from different interdisciplinary academic

25
backgrounds. The empirical section focuses on three MNEs from the ICT industry (IBM, Cisco, and
Accenture), which have established leading positions as global smart city technology suppliers over
the last decade (Navigant, 2013; 2014). It draws on semi-structured interviews with all focal firms, as
well as public authorities in one specific urban context (Amsterdam, the Netherlands), combined with
a documentation study on the activities in smart city technologies of each firm. The study explores to
which degree these firms have developed FSAs by accessing resources and capabilities from their
smart city activities in multiple heterogeneous cities and urban areas, and sheds light on the role of
ICT MNEs in addressing urban sustainability issues though the spread of smart city technology-based
solutions. Given that energy consumption is concentrated in cities and urban areas, this chapter
contributes to insight into the role of firms in addressing energy efficiency in the most energy-intensive
contexts at present.
Chapter 3, entitled ‘Regionalization strategies of European Union electric utilities’, explores
the internationalization patterns of MNEs in the European electricity industry. In order to establish an
European internal electricity market, multiple EU directives aimed at market liberalization and
increasing institutional coherence have fundamentally reshaped the European electricity industry
since 1996. This has had major strategic implications for (formerly state-owned) electric utilities in
terms of their internationalization expansion outside their home markets, and has created policy-
related investment opportunities in RETs to diversify their power generation portfolios. This chapter
sheds light on the (changing) role of the home country/region in internationalization processes, based
on the regionalization perspective of firm internationalization (Rugman and Verbeke, 2004; 2005), The
empirical section explores the internationalization patterns of seven firms (E.ON, RWE, EDF, GDF-
SUEZ, Vattenfall, Enel, and Iberdrola) from five European home countries (Germany, France, Italy,
Spain, and Sweden). It draws on data collected from annual and CSR reports for multiple time intervals
(2000; 2005; 2010), as well as Financial Times reporting on the seven firms between 2000 and 2012.
By distinguishing between their installed fossil fuel-based and RET-based power generation capacity,
this chapter provides a comparative analysis of firm-specific internationalization patterns related to
developments in the European institutional environment. It gives insight into the ability of firms to
create unique FSAs from RET-oriented policy incentives and regulatory frameworks in their home
markets, and reflects how this shapes the internationalization patterns of MNEs.
Chapter 4, entitled ‘The development and commercialization of solar photovoltaic technology
in the oil industry’, addresses the strategic investments of incumbent firms in the development and
commercialization of RETs for power generation. By taking into account both internal factors related
to firm-specific resources and capabilities, and external factors related to industry dynamics, this
chapter presents a research model to analyse the investments of MNEs in solar PV technology. The

26
model distinguishes between three factors which impact firm-specific strategic decision-making
processes: (i) the perceived degree of complementarity between a novel technology and existing
resources and capabilities (Davis, 2006; Milgrom and Roberts, 1990); (ii) their approach to technology
development, based on internal development or external acquisition (Davis, 2006; Levy and Kolk,
2002); and (iii) their strategy for technology commercialization, either towards mainstream or niche
markets (Raven, 2007). The empirical section draws on three major MNEs with established positions
in the oil industry (BP, Shell, and Total) and their investments in solar PV technology, based on archival
data collected from annual reports and newspaper articles. This leads to a longitudinal account of
firm-specific investments and divestures in solar PV technology spanning over two decades, which
unravels the strategic decision-making processes of MNEs in developing and commercializing this
specific RET. This contributes to understanding how both internal and external factors shape MNE
investments in renewable energy, which is crucial in the broader diversification of power generation
technologies away from fossil fuel dependence.
Chapter 5, entitled ‘In search of viable business models for development: sustainable energy
in developing countries’, explores how market-based approaches are emerging as an alternative to
donor-funded projects to establish access to energy in developing countries. This chapter provides an
in-depth review of scholarly work on private sector involvement in sustainable development, and
identifies which financing schemes and delivery models have been applied in development studies to
establish access to energy. It provides a categorization of delivery and financing models (ARE, 2008;
Nygaard, 2009; Umree and Harries, 2006; Zerriffi, 2011) on two dimensions (subsidized-unsubsidized;
public-private), which reflect the nature of existing approaches to establish access to energy. Building
on these existing studies, this chapter adopts a business model perspective to analyse how
entrepreneurial firms aim to create economic, social, and environmental value in this market, and
assesses whether this leads to commercially viable business models. The empirical section explores
the activities of four entrepreneurial firms in Asia (Kamworks, Sunlabob, Husk Power Systems, and
Grameen Shakti), which aim to develop market-based business models for access to energy in their
respective home countries (Cambodia, Laos, India, and Bangladesh), using decentralized RET-based
solutions for off-grid electrification. The study draws on semi-structured interviews with managing
directors of these firms, international organizations, non-governmental organizations (NGOs), and
energy experts. It sheds light on the core components of business models for sustainable energy, and
highlights the complexities involved in building fully commercial business models in this market.
Chapter 6, entitled ‘Smart city pilot projects: exploring the dimensions and conditions of
scaling up’, explores the dynamics underlying upscaling trajectories of ICT-based solutions for
sustainable urban development, which have been developed in donor-funded smart city pilot projects.

27
While such locally developed pilot projects for urban sustainability have proliferated in European cities
in recent years (EU, 2014), many projects have failed to generate scalable solutions that contribute to
sustainable urban development. This study presents three scaling trajectories based on insights from
development studies (Cooley and Kohl, 2005; Hartmann and Linn 2008; Uvin, 1995; World Bank, 2005),
and provides an overview of economic, regulatory, and technological factors which can potentially
drive or hinder upscaling processes. The empirical section explores upscaling trajectories in three
smart city pilot projects in the field of energy efficiency and sustainable mobility (Energy Atlas, Climate
Street, and Cargohopper), which have been developed in a specific urban context (Amsterdam, The
Netherlands) as part of the Amsterdam Smart City network. Drawing on semi-structures interviews
with public and private organizations involved in each pilot project, combined with a review of internal
project documentation, this chapter identifies how upscaling trajectories are influenced and shaped
by each of these factors. The chapter contributes to understanding the dynamics involved in upscaling
trajectories, and the role of the private sector in this process. It establishes insight into the conditions
underlying the potential to scale up locally developed energy efficiency solutions, to achieve a wider
impact on sustainable urban development.
Finally, chapter 7 presents the main contributions from each study, and discusses the broader
implications for the role of firms in the diffusion of technologies for sustainable energy production
and consumption in society. It also reflects on research limitations, and on opportunities for further
research emerging from this dissertation.

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 CHAPTER 2

AN EXPLORATION OF SMART CITY APPROACHES BY INTERNATIONAL ICT FIRMS

2.1 Introduction

In the transition towards a more sustainable energy future, the international diffusion of technologies
which enable energy-intensive economic activities to become more energy efficient is a central factor
(Herring, 2006; Herring and Sorrell, 2009). A substantial part of these activities is taking place in
centres of urban agglomeration. For example, according to UN (2016) figures, approximately 4 billion
people (54% of the world’s population) live in cities and metropolitan areas, with 1.7 billion people
living in cities with at least 1 million inhabitants. In terms of energy consumption, cities and urban
areas account for approximately 60% to 80% of energy consumption and carbon emissions (UNEP,
2011). Hence, in addressing environmental sustainability issues related to societies’ current
dependence on fossil fuels, most notably the effect of greenhouse gas (GHG) emissions on global
climate change, moving towards more efficient modes of urban energy consumption is a major
challenge. City governments, particularly of capital cities and large urban areas, have increasingly
started to address issues related to environmental sustainability and GHG emissions over the last
decade (Bulkeley, 2010; Hodson and Marvin, 2009).
In the academic literature, cities and urban areas are also increasingly receiving attention as
geographic contexts to address persistent sustainability issues in society (Bulkeley et al., 2010; Geels,
2011b; Hodson and Marvin, 2010; Nevens et al., 2013; Nevens and Roorda, 2014; Simmons et al.,
2018), as part of the broader attention to the geography of sustainability transitions (Bridge et al.,
2013; Coenen et al., 2012; Hansen and Coenen, 2015; Smith et al., 2010; Truffer and Coenen, 2012).
As noted in Chapter 1, this stream of research has recently highlighted the need to examine responses
of different types of actors in transition processes towards more sustainable modes of production and
consumption in society (Farla et al., 2012; Markard et al., 2012). However, while the importance of
firms in this regard has been emphasized as well (e.g. Geels, 2014), specific studies on the strategic
approaches of ‘firms-in-industries’ in this realm are lacking, which is where insights from the business
literature and concomitant conceptualizations can add value. This study aims to provide such a
contribution, by examining strategies of multinational enterprises (MNEs) from the information and
communication technology (ICT) industry in the emergence and spread of ‘smart city technologies’ for
energy efficiency in cities and urban areas.

29
We embed our analysis in international business (IB) research, a field in which the geography of
internationalization strategies has emerged as a central theme within the debate on globalization
versus localization of MNEs (Beugelsdijk and Mudambi, 2013; Rugman and Verbeke, 2004; Verbeke
and Asmussen, 2016). However, as will be further explained below, the sub-national level has been
underexposed, although attention for especially the concept of so-called ‘global cities’ (cf. Sassen,
2000; 2005) has recently emerged for explaining the geographic dispersion of firm activities in host
environments (Goerzen et al., 2013; Mehlsen and Wernicke, 2016). Conceptually, this chapter thus
seeks to bridge the gap between geography/regional studies and international business research,
while it empirically contributes a missing sustainability dimension in studies on MNEs and cities, and
adds an actor-oriented perspective to the sustainability transitions literature. More specifically, we
focus on ‘smart’ cities which, as part of the growing interest in the potential of cities and urban areas
in addressing persistent sustainability issues, are increasingly becoming an ubiquitous phenomenon
globally.
While a plethora of definitions and terminologies is used (Albino et al., 2015; Allwinkle and
Cruickshank, 2011; De Jong et al., 2015; Gil-Garcia et al., 2015; Höjer and Wangel, 2015), a central
tenet of ‘smart cities’ is the use of ICT to address one or more sustainability issues, improve the
efficiency of urban services, and contribute to the economic competitiveness and liveability of cities
(EU, 2014; Hollands, 2008; Townsend, 2014). For firms, particularly in the ICT industry, smart cities
have emerged as strategic growth markets. ICT MNEs report investments in developing and marketing
technologies which facilitate the creation of smart cities (Macomber, 2013), a market which is
expected to grow from US$400 billion at present to US$1.5 trillion by 2020 (Deloitte, 2015). While
firms in the ICT industry thus seem to be in a strong position to contribute to more sustainable modes
of energy consumption in cities, as suppliers of smart city technology-based solutions, their strategic
approach to smart cities has not been the subject of much research, with a few exceptions (Paroutis
et al., 2014; Söderström et al., 2014). Based on an analysis of primary and secondary documents plus
interviews, this chapter explores the approaches to smart cities taken by three ICT MNEs (IBM, Cisco,
and Accenture). Specifically, it focuses on how these firms have leveraged their international network
of subsidiaries to build a strategic presence as smart city technology suppliers in a large number of
cities globally.
The chapter is structured as follows. The next section proceeds with an overview of the body
of literature on smart cities from interdisciplinary backgrounds, and identifies opportunities to further
explore the role of firms in smart cities based on these existing studies. This is followed by a theoretical
framework rooted in the international business literature in section 2.3, which elaborates on the
opportunities for MNEs to integrate and leverage resources and capabilities from embeddedness in

30
multiple urban contexts in order to build their activities in the market for smart city technologies.
Subsequently, section 2.4 gives an overview of the research methodology and selected empirical case
studies, while 2.5 explores how the ICT MNEs approach smart cities and to which degree they perceive
smart cities to become growth markets. The final section reflects on the findings in relation to the
literature and discusses the main contributions, limitations and implications for the broader debate
on firms as actors in transitions. It concludes with the identification of some opportunities for future
research at the intersection of MNE strategies and sustainable urban development.

2.2 Smart city technologies and sustainable urban development

The existing body of literature on smart cities is interdisciplinary in nature, and predominantly rooted
in urban studies, public governance, environmental studies, and computer science. While scholarly
work on smart cities to date has addressed a diverse range of aspects related to smart cities, existing
research in this field can be broadly categorized in two types of studies. The first category focuses on
defining the phenomenon of smart cities at a high level of abstraction by reviewing existing definitions
and terminologies adopted in existing publications, and by taking stock of a smart city’s core
components including economic, political, technological, institutional, infrastructural, social, and
governance factors. The second category consists of single or multiple empirical case studies on
specific smart city initiatives, which take a more practical perspective on how smart city initiatives and
projects unfold in a specific context.
From the first category of studies on definitions and terminologies adopted to characterize
the phenomenon of smart cities, it is evident that the smart city has remained a rather ambiguous
concept to date. The lack of a clear-cut definition widely adopted in academic disciplines is also
reflected in the terminology. Terms used for smart cities in different studies are largely used
interchangeably, and include references to sustainable cities, green cities, low-carbon cities, eco-
cities, intelligent cities, resilient cities, knowledge cities, and digital cities (Albino et al., 2015; Allwinkle
and Cruickshank, 2011; Ahvenniemi et al., 2017; De Jong et al., 2015; Gil-Garcia et al., 2015; Höjer and
Wangel, 2015). A very generic distinction can be made between terminologies and definitions for
’sustainable cities’ and ‘smart cities’: the former includes a broad set of definitions incorporating many
dimensions related to urban sustainability issues and the overall liveability of cities, while the latter
explicitly includes the widespread deployment of technological innovation as central in addressing
urban sustainability issues (EU, 2014). Kramers et al. (2014, 53) state in this respect that “ICT can be
used to achieve cities’ climate targets by lowering energy use and GHG emissions from other sectors”,
thereby providing “great potential for supporting the transition to more sustainable cities”.

31
One of the most comprehensive definitions of smart cities is proposed by the International
Telecommunication Union (2015), which is based on 120 definitions adopted by academics,
international organizations, companies, and trade associations. Interestingly, it includes both smart
and sustainable: “a smart and sustainable city is an innovative city that uses information and
communications technologies and other means to improve living standards, efficiency of urban
management and urban services and competitiveness whilst meeting the needs of current and future
generations in the sectors of the economy, society and the environment” (International
Telecommunication Union 2015, 13). This definition reflects that the deployment of ICT-based
solutions to address urban sustainability issues and enhance the quality of urban services is an integral
part of smart cities, embedded in broader development goals related to economic, environmental,
and social dimensions. Other definitions adopted in scholarly work propose similar characterizations
of smart cities (Angelidou, 2015; Caragliu et al., 2011; Giffinger et al., 2007; Hollands, 2008; Komninos,
2011; 2014; Leydesdorff and Deakin, 2011; Lombardi et al., 2012; Schaffers et al., 2011; Stratigea et
al., 2015), in which technological solutions are deployed in cities and urban areas for sustainable
development in fields such as energy, mobility, water and waste management, and other urban
services.
The second category of studies on smart cities consists of single or multiple case studies of
smart city initiatives, which mostly adopt an exploratory and interpretative approach, and focus on
one or more local contexts. This includes studies on smart city initiatives in specific European cities
which have been particularly active in this field, such as Barcelona (Bakıcı et al., 2013; Grimaldi and
Fernandez, 2015) and Helsinki (Hielkema and Hongisto, 2013), as well as comparative studies on smart
city initiatives in multiple cities in Europe, North America, and Asia (Alawadhi et al., 2012; Lee at al.,
2014; Ojo et al., 2015). A particular subset of these studies addresses newly-built smart cities that
have been purposively developed to test and experiment with smart city technologies in a controlled
setting. Attention is paid to key characteristics of high-profile newly-built smart cities, including New
Songdo City in South Korea, Masdar City in Abu Dhabi, Sitra Low2No in Finland, and PlanIT Valley in
Portugal (Alusi et al., 2011; Amitrano et al., 2014). There are also publications that contain more in-
depth, single case studies on specific initiatives, such as Caofeidian International Eco-City in China (Joss
and Molella, 2013). For most of these initiatives, MNEs are identified as part of the consortium of
public and private partners, thus working in collaboration with city governments, albeit their role is
not explicitly addressed in these studies.
In addition to these two main types of studies on smart cities, scholarly work on ‘urban climate
governance’ (Betsill and Bulkeley, 2006; Bulkeley and Betsill, 2005; Bulkeley et al., 2010), ‘urban
climate change experiments’ (Broto and Bulkeley, 2013; Bulkeley and Broto, 2013), and ‘urban

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transitions labs’ (Nevens et al., 2013; Nevens and Roorda, 2014) have yielded insight into the
responses of city governments to sustainable urban development. While this literature does not
explicitly refer to ‘smart cities’, it emphasizes the importance of implementing technological
innovations to address urban sustainability issues related to climate change. Bulkeley and Betsill
(2005, 45) state in this respect that many city governments “have undertaken innovative measures
and strategies to reduce their impact on climate change, which can act as demonstration projects or
form the basis for new experimentation”, whereby “strategies to implement urban sustainability
usually rest on the development of exemplary projects or ‘best practices’, from which lessons can be
learned, and applied, within the urban arena or transferred between cities”. This reflects that city
governments have actively started to address urban sustainability issues on a global scale (Bulkeley,
2010; Hodson and Marvin, 2009), which has created opportunities for firms to develop and market
technological innovations to facilitate this process.
Two studies specifically address the role of firms as suppliers of technological innovations for
smart cities, both in relation to IBM’s ‘Smarter Cities’ programme. Paroutis et al. (2014) examined how
smart city technologies have provided IBM with a growth option in response to the economic
recession of 2007-2008. The authors state that smart city technologies can provide ICT firms with a
strategic growth option, and that IBM’s strategic approach to smart cities “utilizes IBM's core
competencies of solving complex problems and being a technical innovator”, whereby it “re-uses
existing components and solutions where possible” (Paroutis et al. 2014, 269). In addition, Söderström
et al. (2014) characterize IBM Smarter Cities as a form of ‘corporate storytelling’, in which IBM aims
to position itself to city governments as an ‘obligatory passage point’ to address urban sustainability
issues through ICT-based solutions. They give a rather critical view of IBM’s activities and mention
that “the smarter city discourse is a framing device” which “is primarily a strategic tool for gaining a
dominant position in a huge market” (Söderström et al., 2014, 315). However, both studies illustrate
the potential growth market for ICT MNEs that supply technological solutions to make cities more
sustainable and resource-efficient.
This chapter aims to further explore how, and to which degree, ICT MNEs have the potential
to position themselves as international smart city technology suppliers, by developing and exploiting
resources and capabilities which are rooted in their smart city engagements in a large number of cities
and urban areas globally. This adds a novel actor-centric perspective on the role of the private sector
in the creation of smart cities, and provides insight into the strategic approaches of ICT MNEs to the
emergence and spread of smart city technologies in an international context. The next section will
discuss how MNEs can integrate resources and capabilities from local contexts in which they are
embedded through their network of subsidiaries, related specifically to the context of smart cities.

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 2.3 An international business perspective on firm strategies

The geography of international business strategies has emerged as a central theme in IB research, as
part of the debate of the globalization versus localization of MNEs. While the influence of institutional
coherence within the Triad regions (Rugman and Verbeke, 2004; 2005) and country-specific variations
(Bartlett and Ghoshal, 1989; Prahalad and Doz, 1987) on the international strategies of MNEs has been
well-established, the sub-national level has remained relatively unexplored to date. The sub-national
level is an important unit of expansion, given that firms strategically locate their activities in particular
agglomerations rather than in arbitrary locations within host countries, driven by sub-national
spatial heterogeneity between locations (Beugelsdijk and Mudambi, 2013; Beugelsdijk et al., 2010).
Related to the international strategies of firms, the distinct characteristics of global cities have
recently gained attention to explain their attractiveness for MNEs in their location strategies (Goerzen
et al., 2013; Mehlsen and Wernicke, 2016). Goerzen et al. (2013) found that 77% of MNEs locate
activities outside their home market in global cities, which the authors attribute to a combination of
firm-level and subsidiary-level factors related to corporate strategy, investment motives, and
proprietary resources and capabilities. The degree of liability of foreignness experienced by firms,
which include cost incurred outside a firm’s home market arising from unfamiliarity with the host
environment and coordination of activities across geographic distances (Zaheer, 1995), is an important
factor in this respect. Global cities are characterized by three distinctive features, including a high
degree of global interconnectedness, the prevalence of a cosmopolitan environment, and the
widespread availability of advanced producer services (Sassen, 2000; 2005), making them deeply
connected and interlinked with each other despite a lack of geographic proximity (Sassen, 2005).
Mehlsen and Wernicke (2016) state that locating activities in global cities rather than in peripheral
areas is associated with a lower liability of foreignness, as a result of these distinct characteristics. This
offers the potential for substantially lower investment costs and/or greater efficiency in developing
and exploiting firm-specific advantages (FSAs) between different locations in the MNE network
(Rugman and Verbeke, 2007; 2008c). As mentioned in chapter 1, FSAs can be characterized as a firm’s
proprietary knowledge and capability to control, coordinate, and manage its assets over geographic
distances (Rugman and Verbeke, 1992; 2003), and are closely interlinked with a firm’s resources and
capabilities (Kolk and Pinkse, 2008), which include “all assets, capabilities, organizational processes,
firm attributes, information, knowledge” (Barney 1991, 101).
For the international spread of smart city technologies, this implies that an MNE’s presence in
global cities can potentially facilitate the effective transfer of FSAs between different cities and urban
areas, which have been developed through a multitude of local smart city engagements. Meyer et al.
(2011, 241) state that MNEs are well-positioned to access resources and capabilities from multiple

34
local contexts in order to create competitive advantages, and state that the “diversity of local contexts
enables the MNE to access knowledge from many different knowledge clusters and hotspots”.
Similarly, Mudambi and Swift (2011, 186) emphasize that MNEs can potentially develop competitive
advantages from their embeddedness in multiple local contexts, given that this “allows them to tap
into many local systems of innovation to access diverse knowledge bases and integrate them”. Related
to the market for smart city technologies, this implies that an MNE’s ability to leverage resources and
capabilities beyond a specific context, and deploy them throughout the wider MNE network of
subsidiaries, is an important prerequisite in building their position as international smart city
technology supplier.
In this respect, Rugman and Verbeke (1992) make a distinction between location-bound and
non-location-bound FSAs. On the one hand, location-bound FSAs are limited in their deployment to
their domain of operation. Given that their value is constrained to the local context in which they are
embedded, these FSAs cannot be transferred throughout the MNE network and be utilized in other
host contexts. On the other hand, non-location-bound FSAs can be deployed beyond the specific
domain in which they have been developed in the MNE network, to other local contexts in which the
MNE is present through its network of subsidiaries, making them particularly valuable for MNEs
(Rugman and Verbeke, 1992; 2001; 2007). In order for FSAs developed at the local level to be non-
location-bound, several criteria need to be met. Most importantly, local resources and capabilities
need to be specialized, as well as valuable, rare, and imperfectly imitable from a resource-based
perspective (Barney, 1991). If specialized resources and capabilities of subsidiaries are integrated with
existing resources and capabilities embedded throughout the MNE network, they can become part of
a firm’s FSAs (Rugman and Verbeke, 1992). In addition, a subsidiary’s specialized resources and
capabilities need to be recognized by corporate management, and achieve legitimacy and acceptance
in the wider MNE network, in order to be effectively utilized and leveraged to other localities (Rugman
and Verbeke, 1992; 2001).
For non-location-bound FSAs, the degree of liability of foreignness experienced by firms is an
important factor in their effective utilization throughout the wider MNE network. When the distance
between home and host market in terms of regulatory, institutional, economic, and cultural
dimensions increases, it limits the relevance of non-location-bound FSAs (Rugman and Verbeke, 1992;
2007). The preference for global cities in MNE location strategies for locating firm activities in host
markets (Goerzen et al., 2013), implies that firms can transfer and deploy non-location-bound FSAs
more effectively across national borders, given the reduced amount of liability of foreignness that is
associated with locating firm activities in global cities (Mehlsen and Wernicke, 2016). This allows firms
to deploy non-location-bound FSAs more efficiently throughout the MNE network, and in multiple

35
cities at the same time. Yet, it remains important for firms to simultaneously develop location-bound
FSAs in each local context in the MNE network. While these FSAs are limited to the context in which
they are embedded, insights in local market conditions, customer needs and expectations, and
government regulations are still important in each local situation (Rugman and Verbeke, 1992). To
assess how MNEs can potentially develop non-location-bound FSAs from their activities in multiple
urban contexts, a firm’s ability to efficiently manage this interplay between location-bound and non-
location-bound FSAs is a key factor.
In addition, the efficient transfer and integration of knowledge throughout the MNE’s
international network of subsidiaries facilitates firms in developing and exploiting non-location-bound
FSAs. McCann and Mudambi (2004; 2005) identify that subsidiaries have two broad paths for sharing
knowledge beyond local contexts: transferring the accessed knowledge to other subsidiaries and units
throughout the MNE network, or integrating the accessed knowledge with existing knowledge bases.
Both forms of intra-MNE knowledge sharing can potentially provide MNEs with the opportunity to
build their resources and capabilities in any particular market or industry. Mudambi (2002) states that
such flows of knowledge from subsidiary to parent form the basis for an MNE’s network leverage, and
enables MNEs to exploit local resources and capabilities by acting as an intermediary, integrator, and
facilitator of intra-MNE knowledge sharing. In order for knowledge sharing to happen between
subsidiaries in the MNE network, it is important to have organizational procedures in place. Persson
(2006) mentions in this regard that an operational structure which facilitates intra-MNE knowledge
sharing, as well as the presence of incentives to share knowledge, positively influence outbound
knowledge transfer from subsidiaries to the broader MNE network. Hence, the transfer and
integration of knowledge from multiple urban contexts can potentially enable ICT MNEs in developing
non-location-bound FSAs as international smart city technology suppliers.
To explore the strategic approaches of ICT MNEs to the emergence and spread of smart city
technologies, this study focuses on whether and how firms can leverage resources and capabilities
which are developed through their smart city engagements in multiple cities and urban areas.
Specifically, it examines how these firms use local contexts to build FSAs related to smart cities, and
assesses how locally developed resources and capabilities are transferred throughout the MNE
network, facilitated by a lower amount of liability of foreignness experienced from locating firm
activities in global cities (Goerzen et al., 2013; Mehlsen and Wernicke, 2016). The next section
elaborates on the methodology, and introduces the focal firms in the sample.

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 2.4 Method and sample

This study adopts a multiple case study design, and focuses on the strategic approaches of three MNEs
from the ICT industry (IBM, Cisco, and Accenture), which have established leading positions as global
smart city suppliers (Navigant, 2013; 2014). These firms were selected based on the initiatives that
they have developed for their smart city technologies (IBM Smarter Cities, Cisco Smart+Connected
Communities, and Accenture Intelligent Cities), and their international presence in prime cities for the
spread of smart city solutions. The Globalization and World Cities (GaWC) inventory (Beaverstock et
al., 1999; Beaverstock et al., 2000) was used to establish insight into the city-level presence of each
MNE, given that firm reporting on key figures (revenues, assets, employees) is not available at this
specific level. The GaWC inventory provides a relevant roster to account for firm presence at the sub-
national level, as it categorizes cities in terms of their centrality in economic globalization (Beaverstock
et al., 1999; Beaverstock et al., 2000; Derudder et al., 2003; Derudder and Witlox, 2004; Taylor et al.,
2014). Table 2.1 shows the firms’ presence in cities for the three globalization arenas in the GaWC
(North America, Western Europe, and Asia-Pacific), which are considered to be prime cities for the
spread of smart city technologies, based on their inclusion in three comparative rankings related to
smart cities. They cover the 20 highest ranking cities in the Sustainable Cities Index for 2015 (Arcadis,
2015); the 20 highest ranking cities in Innovation Cities Index for 2014 (2thinknow, 2014); and the
highest ranking cities in the Siemens Green City ranking for 2012 (Economist, 2009; 2011; 2012),
including the European (10 highest ranking cities), North American (10 highest ranking cities), and
Asia-Pacific (‘above average’ ranking cities) indices.
An exploratory analysis was conducted for each firm, based on data from documentation and
semi-structured interviews. Firm-specific documentation came from annual reports, CSR and
sustainability reports, and industry-specific publications on smart city technologies. All available
documentation from web-based sources on the programmes of these MNEs for smart cities were
collected and scrutinized. For IBM, the publications which were selected include: ‘A vision for smarter
cities’ (IBM, 2009); ‘Smarter city solutions: leadership and innovation for building smarter cities’ (IBM,
2011a); ‘Actionable business architecture for smarter cities’ (IBM, 2011b); ‘A foundation for
understanding IBM smarter cities’ (IBM, 2011c); ‘Intelligent operations center for smarter cities’ (IBM,
2012); and ‘Smarter cities: creating opportunities through leadership and innovation’ (IBM, 2014). For
Cisco, they consist of ‘Connecting cities: achieving sustainability through innovation’ (Cisco, 2010);
‘Smart+Connected city services’ (Cisco, 2011); ‘Smart city framework: a systematic process for
enabling Smart+Connected Communities’ (Cisco, 2012); ‘Smart cities and the Internet-of-Everything’
(Cisco, 2013a); ‘The Internet-of-Everything for cities’ (Cisco, 2013b); and ‘Smart+Connected

37
Communities: envisioning the future of cities now’ (Cisco, 2014). For Accenture, the analysis is based
on ‘Building and managing an intelligent city’ (Accenture, 2011); ‘Intelligent urban infrastructure’
(Accenture, 2012); ‘Accenture sustainability services’ (Accenture, 2013); ‘Open energy data: a
prerequisite for cities to become low-carbon (Accenture, 2015); and ‘Capabilities for tomorrow’s
digital city hall’ (Accenture, 2017). Key statements from these publications for each MNE and their
activities in smart city technologies are summarized in appendix A. To complement firm-specific
documentation, publications of leading consultancy and accountancy firms with expert industry
knowledge were collected and analysed, including reports by Navigant, Frost & Sullivan, McKinsey,
KPMG, PWC, and Deloitte. This helped to gain a broader perspective on the economic, technological,
environmental, and social aspects of smart cities.

Firm presence in cities part of the GaWC inventory

Geographic location Included in comparative ranking IBM Cisco Accenture
Arena 1: Western Europe
Amsterdam, Netherlands Sustainable Cities; Innovation Cities; Green Cities X X X
Berlin, Germany Sustainable Cities; Innovation Cities; Green Cities X X X
Brussels, Belgium Sustainable Cities; Green Cities X X X
Copenhagen, Denmark Sustainable Cities; Innovation Cities; Green Cities X X X
Frankfurt, Germany Sustainable Cities X X X
Hamburg, Germany Innovation Cities X X X
Helsinki, Finland Green Cities X X X
London, United Kingdom Sustainable Cities; Innovation Cities X X X
Madrid, Spain Sustainable Cities X X X
Munich, Germany Innovation Cities X X X
Oslo, Norway Green Cities X X X
Paris, France Sustainable Cities; Innovation Cities; Green Cities X X X
Stockholm, Sweden Innovation Cities; Green Cities X X X
Vienna, Austria Innovation Cities; Green Cities X X X
Zurich, Swiss Green Cities X X X
Arena 2: North America
Boston, United States Sustainable Cities; Innovation Cities; Green Cities X X X
Chicago, United States Sustainable Cities X X X
Denver, United States Green Cities X X X
Los Angeles, United States Innovation Cities; Green Cities X X X
Minneapolis, United States Green Cities X X X
New York, United States Sustainable Cities; Innovation Cities; Green Cities X X X
San Francisco, United States Innovation Cities; Green Cities X X X
Seattle, United States Innovation Cities; Green Cities X X X
Toronto, Canada Sustainable Cities; Innovation Cities; Green Cities X X X
Vancouver, Canada Green Cities X X X
Washington D.C., United States Green Cities X X X
Arena 3: Asia-Pacific
Hong Kong, China Sustainable Cities; Innovation Cities; Green Cities X X X
Melbourne, Australia Sustainable Cities X X X
Seoul, South Korea Sustainable Cities; Innovation Cities; Green Cities X X X
Singapore, Singapore Sustainable Cities; Green Cities X X X
Sydney, Australia Sustainable Cities; Innovation Cities X X X
Taipei, Taiwan Green Cities X X X
Tokyo, Japan Innovation Cities; Green Cities X X X

Table 2.1: Sample firms’ presence in cities part of the GaWC inventory

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In addition, semi-structured interviews were conducted with representatives of all firms in the sample,
who have expert knowledge of firm-specific activities in smart city technologies and addressing urban
energy efficiency issues through technology-enabled solutions. Complementary to these interviews
with the focal firms, interviews with Amsterdam-based representatives of other public and private
stakeholders in smart cities were held, to gain insight into the specificities of this market as illustrative
example, and the nature of the resources and capabilities that MNEs can potentially access in relation
to smart cities. They included interviews with firms from other industries, members of the Amsterdam
Smart City strategic team, and representatives of the City of Amsterdam with expert knowledge on
smart cities on urban energy consumption. Appendix B shows more information about the
interviewees and the interviews which were all recorded, and lasted between 45 to 120 minutes each.
Combined with the data collected from documentation, a narrative account on the strategic approach
of each ICT MNE to the international emergence and spread of smart cities was constructed.

2.5 Smart city approaches by international ICT firms

IBM
IBM Smarter Cities has been IBM’s main programme for its smart city technologies and city-oriented
consultancy services since 2009, and focuses on the deployment of ICT-based innovations in cities to
address a broad range of urban sustainability challenges. It is part of the broader IBM Smarter Planet
strategy, which was launched in 2008 as IBM’s novel corporate strategy, aimed to develop intelligent
and interconnected systems and infrastructures for different actors (firms, governments, city
authorities) and sectors (energy, transportation, banking, healthcare, education). Big data and
analytics, cloud computing, and ‘cognitive technology’ (e.g. artificial intelligence, machine learning)
have been central drivers in the firm’s strategic reorientation in recent years, whereby IBM (2015, 22)
states that it is “transforming into a cognitive solutions and cloud platform company”. In the firm’s
approach to smart cities, it emphasizes the importance of developing a holistic approach to managing
a city’s core systems, which is in line with this strategic reorientation. IBM (2009, 1-2) identifies in this
respect that “cities are based on six core systems composed of different networks, infrastructures and
environments related to their key functions: people, business, transport, communication, water and
energy”, which together form a “system of systems” that should be addressed in an integral way.
An important part of IBM’s activities in smart cities comes from consulting activities coupled
with city management technologies, such as IBM’s ‘Actionable Business Architecture for Smarter
Cities’ and ‘Smarter City Assessment Tool’. These smart city technologies build on efficient
management of core elements of urban systems, and enable IBM (2011b, 4) in “defining a city through
185 business components and identifying transformation initiatives”. Through these city management

39
technologies, platforms, and applications, as well as city-centric consultancy services to city
governments, IBM’s positions itself as a long-term partner for cities. This includes defining a city’s
strategy strategic approach to addressing sustainability issues in multiple urban systems related to
city-specific goals and aspirations, improving a city’s performance and identifying performance
indicators in line with this approach, and the deployment of ICT-based technological solutions (IBM,
2011a). These components are reflected in the IBM’s Smarter City Challenge as part of the Smarter
Cities programme, which provides pro bono consultancy services and technological solutions to
selected cities globally, to address a specific urban sustainability issue related to energy efficiency,
urban mobility, water and waste management, and digitalization of urban services. IBM (2017) states
that it has deployed 800 IBM employees to 130 cities globally for the Smarter Cities Challenge since
2008, with consulting activities worth US$500.000 per city, with a total value of approximately US$65
million since the start of the programme1.
Strategically, the IBM Smarter Cities programme and Smarter Cities Challenge have been
important for the international spread of smart city technologies in three distinct ways. First, it has
been instrumental in developing in-depth knowledge of urban sustainability issues in different cities
globally, and provided opportunities for organizational learning on addressing these issues trough
smart city technology deployment in heterogeneous contexts. Second, it has enabled IBM to build
relationships with city governments, which fits the broader positioning of the firm in their smart city
technologies as a strategic partner for city governments, in addition to being a smart city technology
supplier. And third, the Smarter Cities programme has enabled IBM to position itself as a leading firm
for ICT-based solutions in urban development, which could potentially be a strategic growth market
for the firm.
While the total value of pro bono consulting activities as part of the Smarter Cities Challenge
is relatively small in comparison to IBM’s annual revenues during the 2008-2017 time period, it does
provide opportunities to build expert knowledge on addressing urban sustainability issues and
optimizing urban services with ICT-based solutions. Also, it facilitates the development of a portfolio
of exemplary projects and best practices in the smart city realm. The IBM interviewee referred to the
fact that the firm has developed expert knowledge in building complex systems and infrastructures
for large public and private clients over decades, and thus has expert knowledge on integrating and
optimizing processes within complex systems and infrastructures. In addition, the firm’s recent
strategic reorientation towards big data and analytics, cloud computing, and cognitive technology
(IBM, 2015) can also be applied in the urban management domain. In this respect, IBM’s smart city

1
For an overview of the approximately 130 cities which have been selected for the IBM Smarter Cities
Challenge since 2008, see: https://www.smartercitieschallenge.org/. Amsterdam was selected for the IBM
Smarter Cities Challenge in 2015, see: https://www.smartercitieschallenge.org/cities/amsterdam-netherlands.

40
activities leverage existing resources and capabilities, and are complementary to this novel strategic
direction. This underscores that the IBM Smarter Cities programme can be characterized as a ‘framing
device’ to develop a strategic presence in this market (Söderström et al., 2014), which utilizes the
firm’s existing resources and capabilities in building and managing complex ICT systems and
infrastructures (Paroutis et al. 2014).
In developing FSAs in the market for smart city technologies from embeddedness in multiple
local contexts, these smart city engagements have enabled IBM to build non-location-bound FSAs
which can be leveraged throughout the MNE network. The firm states that “IBM Smarter Cities
solutions capitalize on insights gained through thousands of client implementations worldwide” (IBM
2014, 4), which has allowed the development of global best practices in the deployment of smart city
technologies based on common models, such as IBM’s ‘Actionable Business Architecture for Smarter
Cities’ model and its ‘Smarter City Assessment Tool’. Smart city activities in heterogeneous local
contexts are therefore claimed to have allowed IBM to develop ”repeatable best practices that can be
applied to cities of all sizes” (IBM, 2011b, 4), thus creating opportunities to achieve economies-of-
scale from replication through the wider MNE network. In this vein, the firm’s technological solutions
for smart cities draw on communalities between each urban system. The interview with IBM
confirmed that presence in prime cities for the spread of smart city technologies is important as that
provides insight into prevalent sustainability issues at the local level, and gives opportunities for
developing resources and capabilities in managing urban systems and infrastructures. In view of the
heterogeneity of each urban environment, such knowledge of local systems creates location-bound
FSAs. Yet, the firm’s ability to build location-bound FSAs through its embeddedness in a particular city,
in combination with non-location-bound FSAs developed from smart city engagement throughout the
MNE network, has contributed to the firm’s ability to position itself as a leading international smart
city technology supplier (Navigant, 2013; 2014).
Intra-MNE knowledge transfer is instrumental in the wider dissemination of non-location-
bound FSA throughout the MNE network, and occurs in multiple ways. The first entails
interdisciplinary collaboration between employees on a project basis. The IBM Smarter Cities
Challenge sends an interdisciplinary project team to address a specific urban sustainability issue in a
selected city, which is assembled from employees with different functional backgrounds, working in
diverse geographic locations. This IBM team provides consulting services to a specific city
governments, and identifies opportunities to address issues through the application of ICT-based
solutions. As these temporary teams consist of employees from different locations and backgrounds,
this facilitates post-project knowledge transfer throughout different subsidiaries in the MNE network,
and allows IBM to create and integrate knowledge from these multiple city-specific activities in smart

41
cities. Second, the interview with IBM identified several other forms of knowledge sharing which occur
in relation to their smart city activities between locations, which includes sharing knowledge via
internal information systems, video conferencing, and other forms of online and offline
communication. Thus, the lack of geographic proximity between locations is not considered to be a
barrier for intra-MNE knowledge sharing between subsidiaries.

Cisco
In Cisco’s strategic approach to smart cities, the firm emphasizes that ICT-based solutions should
improve urban infrastructure and create scalable systems for urban management which contribute
to economic growth and environmental sustainability (Cisco, 2011). The Smart+Connected
Communities programme is Cisco’s leading programme for smart city activities, which has been
developed based on earlier experiences with city-centric consulting activities in Cisco’s Connected
Urban Development programme, a joint collaboration with city governments in seven pilot cities (San
Francisco, Amsterdam, Seoul, Birmingham, Hamburg, Lisbon, and Madrid) established in 2006.
Underlying Cisco’s activities related to smart cities is the assumption that energy-efficient ICT-based
solutions can contribute to a reduction of energy consumption and GHG emissions in cities. Cisco
(2010, 7) states that “building partnerships with these and many other cities in the Smart+Connected
Communities program to promote innovative practices using ICT to develop economic,
environmental, and social sustainability”. Both programmes have been initially developed as
corporate social responsibility programmes to develop proof-of-concept projects in specific cities, and
demonstrate how ICT-based solutions can help cities to address urban sustainability issues. These
proof-of-concept projects have demonstrated “how to reduce carbon emissions by introducing
fundamental improvements in the efficiency of urban infrastructures” (Cisco 2012, 3), and contributed
to the firm’s ability to build specialized knowledge in this market.
In relation to smart cities, Cisco can build on existing resources and capabilities which are
rooted in the development and marketing of ICT-based solutions for a wide range of industries
(manufacturing, energy, transformation, banking, healthcare, education), which include building
network architectures, performing data analytics, and creating Internet-of-Everything (IoE) and cloud-
based solutions (Cisco, 2013a; 2013b). The firm characterizes cities as complex systems that face
fundamental sustainability issues, which can be “mitigated through the adoption of scalable solutions
that take advantage of ICT” (Cisco 2012, 2). Our interview with a smart city expert for Cisco’s European
markets revealed that smart city technologies are not a stand-alone market for Cisco, but rather a
domain in which ICT-based solutions are integrated to optimize the efficiency of urban systems. The
Smart+Connected Communities programme bundles the firm’s portfolio of platforms, products, and

42
services, to provide city governments with “vertical solutions built on the network as an open,
integrated platform” (Cisco 2010, 2). The interviewee characterized the firm’s strategy in smart cities
as emergent rather than planned, given that it builds on insights and knowledge developed from local
smart city engagements, in which the firm collaborates with city governments and other public and
private partners (e.g. facilitated by collaborations within the Connected Urban Development and
Smart+Connected Communities programme). Intra-MNE knowledge sharing between teams and
technical experts in different locations occurs through information systems, webinars, and other
forms of communication. This allows for the exchange of knowledge between subsidiaries in the MNE
network, and provides the potential to leverage non-location-bound FSAs beyond a specific urban
context.
Responsiveness to city-specific sustainability demands and requirements is particularly
important in consultancy services. Cisco (2012, 3) asserts to build open data platforms for city
governments, based on standardized platforms such as the ‘Smart+Connected Operations Center’, to
“enable cities to establish a standard catalog system for recording, measuring, and collating city data,
and for making it easily accessible for efficient, effective implementation and management of smart
city solutions”. For individual cities, the specificities of such a system can vary, depending on local
circumstances. Cisco’s smart city solutions thus combine proprietary ICT platforms and products based
on best practices developed from multiple smart city engagements, with consultancy services that
take city-specific characteristics into account in. This provides cities with “real-time, context-specific
information intelligence and analytics to address specific local imperatives” (Cisco 2013b, 1), and
forms the basis for the firm’s positioning as a strategic partner for city governments (Cisco, 2010).
The firm’s aspiration to build long-term collaborations with city governments is consistently
emphasized in the firm’s strategic approach to smart cities. Cisco (2013b, 19) states that “in order to
realize the full potential of Smart+Connected Communities in the era of the Internet-of-Everything, a
strong public-private partnership approach is necessary”. An illustrative example in this respect in one
specific context of the GaWC inventory (Amsterdam, the Netherlands) is Cisco’s participation in the
‘Smart Light’ pilot project, developed as part of the Amsterdam Smart City network, in collaboration
with Amsterdam’s city government and a consortium of other partners (Philips, KPN, and Alliander).
The aim of this pilot project was to develop and test a ‘smart’ and energy-efficient public lighting
system, with Wi-Fi and motion sensors integrated into the design, which could be managed based on
real-time data on traffic and pedestrian flows2. Our interviews highlighted that this provided Cisco
with an opportunity to build knowledge on this specific type of solution, as part of its broader portfolio

2
A more extensive description and analysis of the Smart Light pilot project is available the report ‘Organising
smart city projects: lessons from Amsterdam’, see: https://amsterdamsmartcity.com/posts/organizing-smart-
city-projects-lessons-learned-fr

43
of IoE solutions for cities, whereby the strategic aim was to develop a solution for public lighting that
could be applied in other cities in the firm’s network as well. While the impact of this solution on urban
energy consumption has remained rather limited to date, given that it has not been scaled up beyond
the pilot project, it does illustrates how Cisco has the potential to access knowledge from local smart
city engagements.

Accenture
Accenture’s activities in the field of smart cities are embedded in the firm’s broader portfolio of
sustainability-oriented services for public and private clients (Accenture, 2013), and primary build on
the concept of ‘Intelligent Cities’. A key characteristic of the firm’s approach is the adoption of
innovative ICT-based solutions by city governments to deliver urban services, which combines a
“coherent and specific vision along with the right kind of technology platform to enable the optimal
integration, delivery and management of city services over time” (Accenture 2011, 10). The firm
identifies several economic, technological, infrastructural, and regulatory factors which facilitate the
development of ‘Intelligent Cities’, in line with this strategic approach. First, cities need a technological
foundation able to embed intelligence in city operations, and provide city governments with an open,
interoperable platform that facilitates the optimization of resource management in multiple domains.
This urban management platform forms the basis for the deployment of smart city technologies to
addressing urban sustainability issues. Accenture (2011, 14) notes that “innovations such as machine-
to-machine communications, sensors, intelligent software and analytics, enable a range of critical
capabilities such as improved efficiency of electricity, water and gas usage”. Accenture’s ‘Intelligent
Infrastructure Platform’ can provide this such a foundation for cities, which the firm operates for city
governments in an ‘Infrastructure as a Service’ mode (Accenture, 2012). Second, cities need strategic
planning to develop a city-specific vision for urban development, which incorporates social, economic,
cultural and resource-related components. This strategic vision should take context-specific variables
of each individual city into account and be related to its prevalent urban sustainability issues. Third,
Accenture identifies that cities should build efficient management and governance mechanisms in line
with this strategic vision. They include regulatory and policy frameworks, financial incentives aligned
with sustainable development goals, and new forms of partnerships between public and private
stakeholders (Accenture, 2011).
Underlying Accenture’s sustainability-oriented consulting services are the firm’s existing
resources and capabilities in strategy consulting and outsourcing services for corporate clients,
governments, and international organizations, as well as expert knowledge in data analytics and the
implementation, integration, and management of ICT-based solutions (Accenture, 2013). The concept

44
of ‘Intelligent Cities’ is adopted to bundle the firm’s sustainability-oriented consultancy activities and
technological solutions for efficient management of urban services, which are embedded in different
departments and business units. Hence, it is not a stand-alone business unit, but a label to aggregate
the firm’s activities related to sustainable urban development, which are distributed throughout the
organization. Accenture positions itself as a strategic partner for city governments in the development
strategic and long-term solutions for urban management, based on developing an intelligent urban
infrastructure rather than implementing individual technology solutions. It states that
“interdependent services can only be optimized if operators and planners in city administrations,
transport services, public and private companies, have a holistic view of their operations and the
environment in which they are embedded” (Accenture 2012, 3). Thus, combining a city-specific vision
for urban development with a technology platform that enables city governments to manage urban
services in an efficient and integrative way (i.e. an intelligent infrastructure), is central in the firm’s
concept of ‘Intelligent Cities’. In this regard, Accenture (2011, 4) mentions that the ‘Intelligent Cities’
concept is “garnered from our experience working with projects and programmes in this space around
the world”, which reflects that their sustainability-oriented consultancy services to city governments
build on knowledge which is developed across a multitude of urban contexts. In addition, the firm
notes in relation to the ‘High Performing City Operating Model’, which is also part of its smart city
offerings, that it “builds upon the experience gained from working with more than 80 global cities”,
and was “peer-reviewed by leading smart cities such as Amsterdam and Paris” (Accenture 2017, 3).
Interviews with smart experts at Accenture, Amsterdam’s city government, and the
Amsterdam Smart City network provided a particularly illustrative example of how MNEs have the
potential to develop non-location-bound FSAs from local smart city engagements. As part of the EU-
funded TRANSFORM project, Accenture developed an open data platform which visualizes energy
flows in Amsterdam in a highly detailed way (the ‘Energy Atlas’), in collaboration with the city
government, utilities, and other data holders (Accenture, 2015; Van Warmerdam and Brinkman,
2015). Complementary to this open data platform, a decision support environment for urban
management was developed, to enable the city government to simulate interventions in the energy
system, supported by the deployment of smart city technologies, in order to lower urban energy
consumption3. The potential for building FSAs as an international supplier of smart city technologies
are both location-bound and non-location-bound in this example. Context-specific factors of the urban
context in which this solution was developed, such as the characteristics of the local urban
infrastructure, the energy system, access to data from local stakeholders, and relationship-building

3
The empirical section of chapter 6 focuses specifically on smart city pilot projects in Amsterdam, and provides
a more extensive description of this example, which was developed as part of the Amsterdam Smart City
network.

45
with the city government, provide the potential to develop location-bound FSAs within this specific
context. These are difficult to integrate and leverage throughout the MNE network, due to their level
of specificity and sub-national spatial heterogeneity in urban contexts. However, the knowledge which
is created in the development and realization of this smart city solution in Amsterdam can be
leveraged beyond this specific context as well. The open data platform for managing urban energy
flows (i.e. the technological solution itself), as well as insight into the organizational process of
accessing data in a standardized format from multiple data holders, can be transferred beyond this
specific urban context. It can be integrated with FSAs in firm’s sustainability-oriented consulting
activities and outsourcing services in other localities, and thus be leveraged through the global MNE
network to offer similar smart city solutions to other city governments. Our interviewees underlined
that Accenture is exploring opportunities to develop similar solutions in other cities, based on the
knowledge developed from their activities in Amsterdam.

2.6 Discussion and conclusions

In the internationalization strategies of firms, locating activities in centres of economic agglomeration

rather than in peripheral areas is associated with a lower degree of liability of foreignness (Mehlsen
and Wernicke, 2016), leading to the propensity of firms to focus on global cities (Goerzen et al., 2013).
The lower degree of liability of foreignness enables firms in leveraging FSAs which have been
developed in different urban contexts efficiently throughout the MNE network (Rugman and Verbeke,
2007). Given the global presence of all firms in the sample in prime cities for the spread of smart city
technologies, as reflected in table 2.1 based on the GaWC Inventory (Beaverstock et al., 1999; 2000),
this creates the potential for ICT MNEs to build and sustain a position as international smart city
technology suppliers. The empirical section reflected that the firms in the sample seem to be able to
tap into resources and capabilities from smart city engagements in a large number of urban contexts,
through their network of subsidiaries. Illustrative in this respect is that IBM (2011a) states that its
design model for smart city solutions is based on insights from ‘over 2000 smart city engagements
worldwide’. Firm-specific programmes, including IBM’s Smarter Cities, Cisco’s Smart+Connected
Communities, and Accenture’s Intelligent Cities, have facilitated this process, and have provided a
basis for building specialized knowledge in technological solutions for urban management. Related to
exploring different types of actors in transitions towards more sustainable modes of energy
consumption (Farla et al., 2012; Markard et al., 2012), this provides insight into the strategic
approaches of ICT MNEs in addressing energy efficiency in cities and urban areas, as suppliers of smart
city technologies.

46
The empirical section highlighted how both location-bound FSAs (which can be exploited globally,
potentially leading to benefits of scale or scope) and non-location-bound FSAs (which benefit the firm
in a specific location) are important in the strategic approaches of IBM, Cisco, and Accenture to smart
cities. On the one hand, the deployment of non-location-bound FSA throughout the MNE network
draws on firm-specific smart city engagements in a wide range of cities. This locally developed
knowledge can be accessed by other subsidiaries and business units in the MNE network (McCann and
Mudambi, 2005), and thus be applied to develop and market solutions to urban sustainability
challenges in other localities. Mechanisms for intra-MNE knowledge transfer, which facilitate the
inflow and outflow of knowledge between subsidiaries in different local contexts in the MNE’s
network (Mudambi, 2002), are an important factor. Interviews with all focal firms confirmed that
formal mechanisms for knowledge sharing between locations are in place, which allows subsidiaries
in the MNE network to transfer explicit knowledge and leverage capabilities beyond the local context.
This includes knowledge sharing through information systems, virtual meetings, and conference calls
between locations (which occurred in all firms), as well as more integrative forms of project-based
collaboration between employees from different locations. A noteworthy example here is IBM’s
Smarter City Challenge, for which IBM has deployed hundreds of employees in major cities globally
since its commencement in 2008. Teams consist of employees with interdisciplinary backgrounds from
different office locations, and are commissioned to work collaboratively on a specific sustainability
issue in a city for multiple weeks. The interview with IBM reflected that this facilitates post-project
knowledge dissemination throughout locations in the MNE network, and may allow MNEs to leverage
FSAs throughout different locations, which can potentially lead to the development of non-location-
bound FSAs in this market.
On the other hand, several location-bound FSAs remain important for responsiveness to local
sustainability requirements, despite being limited in their deployment to the geographic context in
which they are embedded. For smart city technologies in particular, pre-existing collaborations,
partnerships, or contractual arrangements between MNEs and city governments within a specific
urban environment are important. As the empirical section showed, all three ICT MNEs in the sample
aim to position themselves as a strategic partner for city governments, and advocate the development
of a holistic and long-term smart city vision, which move beyond technological fixes for isolated
sustainability issues. Cisco (2010) claims in this respect that their strategic aim is to build partnerships
with cities as part of its Smart+Connected Communities programme, which promotes innovative
practices using ICT to develop economic, environmental, and social sustainability. Similarly, IBM
(2011a; 2011b) refers to the extensive knowledge and experience in collaborating with city
governments, positioning itself as a strategic partner for technology-driven innovation and urban

47
management. Given that city governments are the primary customers for urban management
solutions based on smart city technologies, existing relationships are important location-bound FSAs
for these firms.
However, the interviews with public actors in Amsterdam highlighted that while these firms
play active roles in several smart city pilot projects, the scope of their activities has remained relatively
small and experimental to date. The involvement of these firms in Amsterdam Smart City projects, as
discussed for two energy efficiency projects in the previous section (i.e. Cisco in the ‘Smart Light’
project and Accenture in the ‘Energy Atlas’ project), are illustrative in this regard. Both examples
showed that these pilot projects can provide opportunities for firms to build knowledge in developing
and deploying smart city solutions, as part of their broader international portfolio of smart city
engagements. At the same time, it reflected that the broader environmental and social impact from
these projects on sustainable urban development has remained rather limited to date, given that the
process of scaling up these solutions beyond a pilot project proved to be challenging. Chapter 6 will
therefore focus on the complexities involved in scaling up solutions from smart city pilot project in
more detail, with specific attention to the role of MNEs. It should also be noted that the ambition to
be ‘a (key) strategic partner’ will be rather difficult for all three firms concurrently in the same city, so
a certain level of competition can be expected, especially when the stakes become higher than they
currently are. Moreover, if the amounts involved in smart city projects increase considerably, there
will a requirement for public tenders in quite some countries, at least in Europe, so obtaining a
privileged position may not be that easy.
The analysis of the strategic responses of MNEs to smart cities has provided a firm-centric
perspective to existing studies in this field, rooted in IB literature, which reflects key factors that shape
the strategic approaches of international smart city technology suppliers. Table 2.2 provides an
overview of location-bound and non-location-bound FSAs that can potentially be developed by ICT
firms in relation to smart cities, as described for each focal firm in section 2.5. These factors were
identified based on the empirical exploration of their smart city engagements, as well as the interviews
conducted in Amsterdam with public and private actors. It shows that there are differences in the
labels that these firms use, and to some extent in approaches, but that they also share quite some
similarities, predominantly in the nature of the urban management solutions that this firms offer to
city governments.

48
 Strategic approaches of smart city technology suppliers
IBM Cisco Accenture
Cisco Smart+Connected
IBM Smarter Planet;
Smart city strategy or programme Communities; Connected Accenture Intelligent Cities
Smarter Cities
Urban Development
‘Actionable Business ‘Accenture Intelligent
‘Cisco Smart+Connected
Architectures for Smarter Infrastructure Platform’;
Urban management platforms Operations Center’; ‘Cisco
Cities’; ‘IBM Intelligent ‘Accenture High Performing
Kinetic for Cities’
Operations Center’ City Operating Model'
Complex systems and Connectivity and Internet-
Strategy consulting;
digital infrastructures; Big of-Everything solutions;
Outsourcing services;
data and analytics; Network and cloud
Optimization and
Main foci Optimization/automation solutions; Optimization
automation of digital
of digital services; and automation of digital
services; Software
Hardware and software services; Hardware and
orientation
orientation software orientation
Partner in Amsterdam Smart City network Yes Yes Yes

Creation of potential non-location-bound FSAs

Building resources and capabilities in management

X X X
from heterogeneous urban contexts
Building a position as international smart city
X X
technology supplier in a potential growth market
Building a portfolio of exemplary projects and best
X X X
practices in smart city solutions
Building expert knowledge of persistent sustainability
X X X
issues in cities and urban areas
Exploiting complementarities between existing
X X
resources and capabilities in ICT and urban domains
Optimizing proprietary solutions (products and
X X X
services) from multitude of smart city engagements

Creation of potential location-bound FSAs

Building relationships with city governments in prime

X X X
cities for the spread of smart city technologies
Building expert knowledge of specific urban system
X X X
and infrastructures in a local context
Gaining access to local knowledge clusters and urban
X X X
stakeholders in a local context

Table 2.2: Assessment of strategic approaches of smart city technology suppliers

The creation of non-location-bound FSAs from local smart city engagements provides firms with the
opportunity to address persistent urban sustainability challenges on a global scale. Interviews with
smart city experts within each focal firm underlined that their technological solutions for urban
management primarily focus on the common characteristics of urban systems. In the development
and spread of smart city solutions, firms are able to exploit these communalities by building
standardized urban management platforms, products, and services, which can be customized to fit
the local sustainability demands and requirements of each individual city. This is reflected in the
proprietary urban management platforms offered by each firm (i.e. IBM’s ‘Actionable Business
Architectures for Smarter Cities’, Cisco’s ‘Smart+Connected Operations Center’, and Accenture’s
‘Intelligent Infrastructure Platform’). Interviewees from each firms confirmed that these urban

49
management platforms are largely based on existing their resources and capabilities, rooted in the
development of ICT solutions for public and private clients, applied to the smart cities domain. While
this standardization in technological solutions contributes to the ability of MNEs to position
themselves as international smart city technology suppliers, researchers have also been critical in this
respect (Söderström et al., 2014; Townsend, 2014). As the review of studies on smart cities in section
2.2 showed, most scholars in the field of geography/regional studies emphasize the importance of
including a much broader set of societal dimensions into the conceptualization of smart cities, related
to the overall liveability of cities and urban areas. Chapter 6 will elaborate on this wider perspective,
by focusing on multiple smart city pilot projects developed in Amsterdam in a more in-depth manner.

Implications for further research and limitations

Several limitations can be identified for this study. First, the industry-specificity and relatively small
sample of ICT MNEs limits the generalizability of the findings presented in section 4 for a broader set
of ‘firms-in-industries’ (Geels, 2014) in response to the emergence of smart cities. Second, the lack of
specific firm-level data on revenues and sales for their activities in smart cities makes it difficult to
determine the extent of firm-specific investments in this market, and assess its strategic importance
for the firm. Similarly, the lack of firm reporting on key figures at the level of specificity of cities and
urban areas is a limitation to explore firm strategies at the sub-national level. While the GaWC
inventory, which was adopted instead, provides insight into the presence of a firm in a particular city,
it does not give an accurate picture of the scope of firm activities at that level. A third limitation stems
from the use of documentation published by the focal firms, which is inherently a form of self-
representation, often meant for reputational purposes. By triangulating firm information with other
sources, including semi-structured interviews and publications from reputable third parties where
possible, an attempt was made to redress this limitation. However, lack of possibilities to check
company statements is an issue.
For future research, it would be fruitful to explore which intra-MNE knowledge sharing
mechanisms are most effective in leveraging non-location-bound FSAs throughout the MNE network.
The interviews with IBM, Cisco, and Accenture all confirmed that the transfer of explicit knowledge
between locations occurred between subsidiaries, and enabled them to draw on resources and
capabilities developed from multiple smart city engagements globally. The transfer of tacit knowledge
is far more complex, however, given that it is embedded in the routines of individuals, and therefore
difficult to transfer through information systems. Hence, gaining insight into effective mechanisms for
knowledge transfer between subsidiaries with the MNE network would be worthwhile. This is
intertwined with the capacity of MNEs to leverage non-location-bound FSAs beyond a specific local

50
context, as emerged from the analysis of these MNEs. The spatial heterogeneity of each urban
environment (Beugelsdijk and Mudambi, 2013; Beugelsdijk et al., 2010), and the need for local
responsiveness on the part of the MNE in relation to environmental and social issues (Kolk, 2010; Kolk
and Margineantu, 2009), has made ICT firms and smart city technologies an interesting initial research
context at the sub-national level. Nevertheless, there are many questions, related to the actual
importance and relevance as well as the implementation, beyond that what is stated by companies
verbally and in writing.
In addition, further research should also explore the complexities and dynamics of
collaboration between MNEs and other stakeholders within urban contexts, most notably city
governments. Collaboration between public and private actors is an integrative part of addressing
urban sustainability issues through the spread of smart city technologies (EU, 2014). This firm-centric
analysis primarily showed how MNEs (state to be) involved as suppliers of technological solutions for
cities. For one particular urban context (Amsterdam, the Netherlands), the interviews showed that
IBM, Cisco, and Accenture are all involved in energy-related pilot projects as part of the Amsterdam
Smart City network. Given that such city-level collaborations have proliferated in capital cities in
recent years, further research on collaboration between MNEs and city governments could shed more
light on the actual involvement of MNEs in smart cities. This could complement existing case studies
on smart cities (e.g. Amitrano et al., 2014; Bakıcı et al., 2013; Hielkema and Hongisto, 2013; Joss and
Molella, 2013), and provide more insight on cities and urban areas as geographic contexts to address
persistent sustainability issues in society (Bulkeley et al., 2010; Geels, 2011b). Chapter 6 provides an
initial contribution here, by providing a management perspective on the factors which facilitate smart
city solutions to be scaled up from pilot projects in the Amsterdam Smart City network.
Given that challenges related to sustainable modes of energy production will intensify in the
years to come, it is important to explore the approaches to sustainable energy from MNEs in other
industries as well. This could contribute to a more fine-grained analysis of how different types of actors
approach transition processes towards more sustainable modes of production and consumption in
society (Farla et al., 2012; Markard et al., 2012), and complement insights on the approaches of ICT
MNEs at the city-level presented in this study. The next chapter also adopts an international business
perspective on the approaches of MNEs to sustainable energy, and explores EU electric utilities and
their role in the transformation of the European electricity sector (i.e. supra-national), including their
renewable energy investments. This adds to insights from this chapter on the responses of MNEs to
sustainable energy in cities and urban areas (i.e. sub-national), as actors in the transition that is seen
as necessary.

51
Appendix A / Table 2.3: Smart city statements of the ICT firms
Firm Smart city strategy Exemplary statements and quotes on strategic approach to smart cities
or programme
IBM IBM Smarter Planet; “Cities are based on six core systems composed of different networks, infrastructures and environments related to
IBM Smarter Cities their key functions: people, business, transport, communication, water and energy (…) the six core systems
become a ‘system of systems’ (…) each element of this ‘system of systems’ faces significant sustainability
challenges” (IBM 2009, 1-2).
“Smarter cities make their systems instrumented, interconnected and intelligent (…) pervasive information and
communication technology means that there is much greater scope for leveraging technology for the benefit of
cities” (IBM 2009, 9).
“Administrations - at city level and elsewhere - are recognizing the importance of ‘perpetual collaboration’ (…) city
administrations will need to work seamlessly across their own organizational boundaries and partner effectively
with other levels of government, as well as with the private and non-profit sectors” (IBM 2009, 12).
“Actionable Business Architecture for Smarter Cities consists of a set of operating models, including a model for
the city ecosystem (city ecosystem model), models for individual systems of cities, and models for shared
functions” (IBM 2011a, 3).
“IBM has developed Actionable Business Architecture for Smarter Cities, leveraging decades of experience in
partnering with cities and local governments across various domains” (IBM 2011a, 8).
“IBM Smarter City Solutions are based on insights drawn from more than 2.000 Smarter City engagements
worldwide. By working with inspiring leaders to solve difficult challenges, IBM has developed repeatable best
practices that can be applied to cities of all sizes” (IBM 2011b, 4).
“IBM intends to expand its Smarter City solution portfolio to fulfill the Smarter Planet vision. By making cities more
instrumented, integrated and intelligent, IBM Smarter City Solutions can help city leaders meet and exceed
citizen expectations through innovation” (IBM 2011b, 19).
Cisco Cisco “The internet is making cities more essential than ever through a networked urban infrastructure (…) the Cisco
Smart+Connected Smart+Connected Communities program seeks to find visionary and practical approaches regarding technology
Communities; innovation, and for what an urban services platform means for the build-out of sustainable urban
Cisco Connected infrastructures” (Cisco 2010, 2).
Urban Development “Cisco proof-of-concept projects fit into the wider urban blueprint whereby Cisco ultimately envisions a global
urban services platform approach for - and among - cities (…) an urban services platform approach is based on
an ecosystem that encompasses an eco-centric set of technologies and standards that allows for interoperability
of applications and devices” (Cisco 2010, 16).
“Greenhouse Gas emissions are forcing cities to develop sustainability strategies for energy generation and
distribution, transportation, water management, urban planning, and eco-friendly (green) buildings (…) These
issues, and others, can be mitigated through the adoption of scalable solutions that take advantage of ICT to
increase efficiencies, reduce costs, and enhance quality of life” (Cisco 2012, 2).
“A Smart City Framework will enable cities to establish a standard ‘catalog’ system for recording, measuring, and
collating city data, and for making it easily accessible for efficient, effective implementation and management of
Smart City solutions for economic, social, and environmental gain” (Cisco 2012, 3).
“The complexity of cities (multiple parties, stakeholders, and processes) remains the most significant barrier to
adopting smart city solutions (…) complexity manifests itself across many areas of local government - regulatory,
governance, economic, systemic, policy, and organizational” (Cisco 2012, 4).
“In order to realize the full potential of Smart+Connected Communities in the era of the Internet-of-Everything, a
strong public-private partnership approach is necessary” (Cisco 2013b, 19).
Accenture Accenture Intelligent “A city capable of becoming both environmentally sustainable and attractive to citizens and businesses requires a
cities new kind of intelligent infrastructure— an innovative, open platform based on smart technologies that can help
forward-looking cities more predictably integrate a complex suite of services cost-effectively, at pace and at
scale” (Accenture 2011, 9).
“Important characteristic that distinguishes an Intelligent City is the manner in which it delivers services using
advanced technologies: an integration of a number of innovations including machine-to-machine
communication enabled by telematics, sensors and RFID technologies; smart grid technologies to enable better
energy production and delivery; intelligent software and services; and high-speed communications
technologies” (Accenture 2011, 10).
“The technological foundation of an Intelligent City is an intelligent infrastructure: the ability to embed intelligence
in city operations, making the drive toward sustainability” (Accenture 2011a, 14).
“Accenture Intelligent Infrastructure Platform is operated in Infrastructure as a Service mode (Accenture 2012, 4).
“Accenture can help cities thrive in the emerging low-carbon economy by tailoring solutions that take advantage
of innovations in key infrastructure areas including smart grid services, smart metering, transportation, water
conservation, waste and pollution” (Accenture 2013, 4).
“Accenture can help cities define, develop and implement technology and communications infrastructure based
on interoperable and scalable platforms, which leverage open technologies and architectures. These are vital
enablers of smart cities” (Accenture 2013, 4).
“Accenture’s High Performing City Operating Model builds upon the experience gained from working with more
than 80 global cities (…) the model defines the key building blocks of a modern city government’s capability
framework. The model was peer-reviewed by leading smart cities such as Amsterdam and Paris” (Accenture
2017, 3).

52
Appendix B / Table 2.4: Overview of interviews on smart cities and firm strategies

Actor Organization Participant Date and time

Semi-structured; 28 June
Private Accenture Smart City and Sustainability Services Consultant
2017: 80 minutes

Semi-structured; 2 March
Private Cisco Smart City and Internet-of-Everything Consultant
2017; 120 minutes
Semi-structured; 20 April
Private IBM Sustainability and Corporate Affairs Manager
2017; 80 minutes
Semi-structured; 15 June
Private KPN Business Services Consultant
2017; 60 minutes
Semi-structured; 7 June 2017;
Private Philips CSR and Government Affairs Manager
45 minutes
Semi-structured; 13 April
Public Amsterdam Smart City Communication Manager
2015; 60 minutes
Semi-structured; 6 May 2015;
Public Amsterdam Smart City Project Manager Internationalization
50 minutes
Semi-structured; 11 May
Public Amsterdam Smart City Project Manager Energy Innovation
2015; 45 minutes
Semi-structured; 29 April
Public Amsterdam Smart City Business Development Manager
2015; 80 minutes
City of Amsterdam Municipality Semi-structured; 24
Public Smart City Expert / Programme Manager
Physical Planning Department November 2014; 60 minutes
City of Amsterdam Municipality Semi-structured; 24
Public Urban Energy Expert / Urban Planner
Physical Planning Department December 2014; 70 minutes
City of Amsterdam Municipality Semi-structured; 18
Public Urban Energy Expert / Urban Planner
Physical Planning Department November 2014; 60 minutes
City of Amsterdam Municipality Semi-structured; 20 January
Public Urban Energy Expert / Policy Advisor
Climate and Energy Office 2015; 50 minutes
City of Amsterdam Municipality Semi-structured; 26
Public Urban Energy Expert / Policy Advisor
Climate and Energy Office November 2014; 60 minutes
City of Amsterdam Municipality Semi-structured; 19
Public Urban Energy Expert / Programme Manager
AEB Amsterdam November 2014; 90 minutes

53
54
 CHAPTER 3

REGIONALIZATION STRATEGIES OF EUROPEAN UNION ELECTRIC UTILITIES 4

3.1 Introduction

In the past decade, a debate has started about regionalization, initiated by Alan Rugman who
announced the ‘end’ of global strategy, calling it a ‘myth’ (Rugman, 2001; Rugman and Hodgetts, 2001).
Presented as a specification of the integration-responsiveness framework (Bartlett and Ghoshal, 1989),
particularly to further explore the ‘high national responsiveness’ dimension (Rugman and Hodgetts,
2001), it has evolved as a firm-level manifestation of semi-globalization, which alludes to the fact that
markets show neither complete fragmentation nor perfect integration (Ghemawat, 2003). The region
as a relevant unit of expansion for multinational enterprises (MNE) has been developed around an
extended notion of Triad power and especially the ‘global impasse’ phenomenon as noted by Ohmae
(1985), pointing at the inability of many firms to be present in all three legs simultaneously to the same
extent. As such political and economic regional integration projects such as the North American Free
Trade Agreement (NAFTA) and the European Union (EU) are important influences on the regional
nature of MNEs, as these both provide more regional institutional coherence. For MNEs in a region,
this offers the potential for substantially lower investment costs and/or greater efficiency in the
exploitation and development of non-location-bound firm-specific advantages (FSAs) within the region
relative to other alternatives (Rugman and Verbeke, 2004, 2005, 2008c).
The EU is the broadest and deepest regional integration project between independent nation
states in modern time, including economic, political and social dimensions. Energy is a key EU policy
issue area that features the longstanding economic ideal of a single European market, with the internal
energy market, and a social dimension in the response to pressing societal challenges, pursued through
the ‘EU sustainable energy policy’ process (EC, 2010). Initially put on the agenda in 1987, the EU
internal energy market has seen three policy packages (in 1996, 2003 and 2007) aimed at liberalization
of what used to be a “heavily regulated industry in almost all EU countries, dominated by national or
regional, vertically integrated monopolies” (Domanico 2007, 5064). In conjunction with energy market
liberalization, which has been characterized as incomplete in some EU countries (Joscow, 2008), thus
creating major differences between countries within the EU, renewable energy targets have also been
set through various EU directives (Jones, 2010). In 2009, a Renewable Energy Directive was adopted

4
This chapter was published in British Journal of Management, 2014, 25(1), 77-99, with Ans Kolk and Johan
Lindeque as co-authors (for more details, see co-author statements included elsewhere in this dissertation).

55
by the EU in order to establish concrete policy, to be implemented by all member states, towards
achieving the 20/20/20 targets (a 20% cut in carbon dioxide emissions, a 20% share of renewable
energy and 20% energy-efficiency improvement by 2020). The steps taken in the EU sustainable energy
policy process represent a drive for significant regional harmonization that has shaped the regional
institutional environment of energy firms.
A particularly important subset of these energy firms is formed by those that are involved in
electricity generation and supply (hereafter labelled electric utilities), in view of their role at the heart
of the business-society debate about how to sustainably provide “the life blood of our society” (EC
2010, 2). These firms generate a major energy source for both industrial and domestic consumers,
while using a range of natural resources as their primary inputs, with various environmental impacts
depending on the types involved. As such these firms are not only key players in the EU sustainable
energy policy process but also in the broader transition from state-owned, protected positions to
liberalized electricity markets with competition, private ownership and more independent regulatory
bodies. This changing context clearly affects the profitability, growth and survival of electric utilities,
and speed and degree of internationalization in relation to their home countries/regions is a crucial
firm-specific factor in this regard. Incumbent utilities may, for example, benefit from a protected home
market, while enjoying the opportunity to enter markets where liberalization has seen more progress.
This raises questions about the importance of these utilities’ home countries and region in their
internationalization processes, in relation to both their ‘traditional’ fossil-fuel and renewable energy
generation.
This paper seeks to answer these questions by exploring the global/regional orientations of
the seven major EU electric utilities (EDF, Enel, E.ON, GDF Suez, Iberdrola, RWE, Vattenfall) from five
different home countries (Germany, France, Italy, Spain, Sweden), which are active in both fossil-fuel
and renewable energy generation. They have leading positions in multiple national markets and
existing power generation portfolios largely established in fossil and/or nuclear technologies, with
vertically integrated supply chains covering the production to end-consumer value chain including
generation, transmission, distribution and retail supply activities (Schülke, 2010). The seven firms are
featured by (former) state ownership, are most often based in the largest national energy markets of
key EU member states, and have shown serious internationalization since the late 1990s, in the context
of regional market liberalization. The unique characteristics of the electric utilities gives the
opportunity to further examine the representativeness critique of the original Rugman and Verbeke
(2004) MNE sample (Seno-Alday, 2009). The predominance of (former) state ownership of these
utilities, and their frequent historic dominance as domestic monopolies, suggests home-country
effects are likely to be important features of their regionalization. The EU sustainable energy policy
process furthermore offers the opportunity to explore the regionalization of firms in terms of legacy

56
fossil-fuel energy generation and emerging renewable energy operations, thus considering different
scope of business units and FSAs.
The paper proceeds by reviewing the regionalization literature and the role of the home
country/region in this debate. This is followed by an explanation of the method and sample, a
presentation and discussion of findings, and subsequently conclusions, implications and limitations in
light of the broader regionalization debate, to which this study aims to contribute.

3.2 The (semi)globalization and regionalization debate

Following Rugman and Verbeke (2004), regionalization issues, covering various locations and
industries, have subsequently been addressed by an increasing number of scholars and also received
attention in special issues of Management International Review (2005), European Management
Journal (2009) and International Marketing Review (2009), and in an edited volume (Rugman, 2007).
The emergence of regional MNEs and regionalization can be placed in the context of earlier attention
to local-global distinctions, which pointed at the need for MNEs to combine local responsiveness and
global integration (Bartlett and Ghoshal, 1989, Prahalad and Doz, 1987), as well as the more recent
evidence on the existence of incomplete cross-border integration, labelled as semi-globalization, thus
requiring regional strategies (Ghemawat, 2003, 2005). A central argument being that the liability of
foreignness that an MNE experiences is less within the home region than outside it, resulting in lower
adaptation costs with intra-regional internationalization (regionalization) than those borne in case of
inter-regional expansion (Rugman and Verbeke, 2007). Home-region location-specific (linking)
investments needed to exploit and develop non-location-bound FSAs can be expected to be less
substantial and/or can be deployed more efficiently than outside this region (Rugman and Verbeke,
2004, 2005, 2008c); this can be reinforced by policies that add further coherence at the regional level,
such as those taken in the framework of the EU or NAFTA. The result is the phenomenon as recognized
by Rugman and Verbeke (2004) that firms are not global, i.e. that there are only a few MNEs amongst
the Fortune Global 500 that have a substantial presence in all three regions of the Triad. Instead, if
firms internationalize, they do this most often within their home region.
Rugman and Verbeke (2004) developed a four part typology of the regional
presence/orientation of MNEs, including (1) global, (2) bi-regional, (3) home-region oriented and (4)
host-region oriented MNEs. Classifying MNEs within these categories relies on the specification of the
regions themselves and criteria for the value of sales, assets or other relevant measures of MNE
presence for measuring regional presence. Each MNE has a home region were their home country is
located and two other regions in which they can additionally be present. MNEs that are global have

57
their activities distributed most evenly across the three regions. Bi-regional MNEs have the majority of
their business in just two of the regions. MNEs with a host-region orientation have more than half their
activities in a region other than their home region. MNEs with a home-region orientation have the
majority of their business activities in the region around their home country; they accounted for 84%
of the 380 MNEs in the Fortune 500 list included in Rugman and Verbeke (2004). This significance of
the home region has emerged as a major theme in the regionalization literature (Rugman and Oh,
2012).
While the regionalization literature has been subject to significant debate, it is less the
phenomenon itself and the argumentation that has been contested and discussed, but rather the
underlying evidence, especially the conceptualization, measurement and the conclusions drawn from
that. Debate has been sparked, inter alia, about limitations of the sample (since the Fortune Global
500 is not equivalent to the largest 500 MNEs, as it was presented initially); the arbitrary nature of the
cut-off points between (bi-)regional and global; the coherence of particularly Asia-Pacific as a region;
insufficient attention for the size of the (home) market; and the fact that the regionalization ‘evidence’
may in fact stem from a home-country effect (i.e. the predominance of the domestic market rather
than the other countries in the home region) (Aharoni, 2006; Dunning et al., 2007; Osegowitsch and
Sammartino, 2008; Stevens and Bird, 2004; Westney, 2006). Subsequent studies have addressed such
issues further, and some main findings will be indicated next – not with the objective to be
comprehensive and ‘settle’ the debate, but instead to assess implications that are relevant for the
subject of this paper: particularly the importance of the home country (Rugman and Verbeke, 2007,
2008c), of industry (e.g. Li, 2005; Rugman and Verbeke, 2008b) and issue specificity (Kolk, 2005, 2010),
and differences between business units (Proff, 2002; Rugman and Verbeke, 2008a).
The importance of the home country has received considerable attention, also in responses by
Rugman and Verbeke (2007, 2008c) to two commentaries on their work (Dunning et al., 2007;
Osegowitsch and Sammartino, 2008). Interestingly, the data they provide (of sales of UK firms in the
Global 500, and sales and assets of the top 500 in the 2001-2005 period) in both articles show that
domestic sales (and assets) predominate, although this is not explicitly noted. In the Global 500 panel,
percentages for sales/assets in rest of the world (ROW) are a little less than 25%, and those in rest of
the region (ROR) around 10% (Rugman and Verbeke, 2008c), which means that the home country
accounted for approximately 65% over the years. The largest European MNEs (in the 2000-2006
period) turn out to have close to half of their sales and assets in their home countries (Oh, 2009). The
home market is on average even more important for Japanese MNEs (Collinson and Rugman, 2008).
So regionalization for these sets of firms, on average, also means a strong domestic presence. A clear
home-country effect has been found in further research with additional data and/or other approaches,
and other sets of MNEs, both from the Triad and emerging economies (e.g. Asmussen, 2008; Banalieva

58
and Santoro, 2009; Hejazi, 2007; Seno-Alday, 2009; Sethi, 2009). Home-country effects on MNE
strategies have also recently (re-)emerged as an important theme in the broader International
Business literature. Given the central role of the state in the historical emergence of most of the major
EU electric utilities, this study makes a contribution to the regionalization literature by highlighting the
importance of political and public policy influences on the regionalization of these MNEs. This
complements the regionalization literature that has studied the importance of home market size,
regional concentration (Seno-Alday, 2009; Oh, 2009) and conformity to economic predictions of
optimal internationalization (Asmussen, 2008; Hejazi, 2007).
While data problems, particularly availability of firm-level regional data, seem to hinder more
in-depth study, this phenomenon deserves further attention, especially in the case of (formerly)
regulated industries such as electric utilities. At least for analytical purposes, a further distinction of
the ‘regional’ dimension appears necessary to separate that category from those firms that are
predominantly local with their international presence furthermore mostly in either rest of region (ROR)
or rest of world (ROW). This also means that domestic institutions matter as much, and in some cases
more, than regional ones, depending on the type of MNE we talk about. To be fair, the original
intention of Rugman and Verbeke (2004) was to emphasize the locus of destination, while not denying
the importance of the locus of origin. However, since the data show that regionalization in many cases
also implies a strong presence in the home country, a more explicit consideration of the different
patterns of regional involvement seems an appropriate addition to allow for a more specific analysis
and an improved understanding of the phenomenon, and its implications for MNE strategy. This
includes a specification of intra-regional groupings (sub-regions) as proximate (large) markets often
appear more interesting in terms of liabilities, adaptation costs and potential benefits of
regionalization (cf. Seno-Alday, 2009). This seems particularly relevant in the case of electricity in view
of transmission and distribution considerations.
What has also come to the fore in the regionalization debate is the importance of industry-
specificity, considering broader categories such as manufacturing versus services, but also more
specific, detailed (sub)sectors (e.g. automotive, retail, cosmetics, accounting, financial services,
professional services, food and beverages, and soft drinks) (Filippaios and Rama, 2008; Gardner and
McGowan, 2010; Grosse, 2005; Kolk and Margineantu, 2009; Oh and Rugman, 2006; Rugman and
Collinson, 2004; Rugman and Girod, 2003; Rugman and Verbeke, 2008b). Li and Li (2007) showed that
patterns of globalization/regionalization differ depending on whether an industry is more globally
integrated or rather multi-domestic. The current study reckons with these concerns by its focus on one
specific sector, electric utilities. By concentrating on generation, covering both fossil fuels and
renewables, it also takes issue-specifity into account (Kolk, 2010). Finally, Rugman and Verbeke (2008a)
noted that regionalization dimensions may not only be relevant at the corporate level, but also for

59
strategic business units, with the possibility of distinct roles in terms of FSA types and also geographic
scope, even within one and the same MNE. Given that large electric utilities have generally created
separate units for renewable energy, this is something that can be explored in this study. Before
moving to the findings, the next section first discusses the method and sample.

3.3 Method and sample

We used a multiple case study design in the same vein as that adopted by Rugman and Collinson
(2004). This allows the in-depth study of a set of firms representing the major electricity generators in
the European energy market and conclusions to be drawn about the nature of their
globalization/regionalization strategies and the role of the home country in their internationalization
processes. Regarding the sample, the following leading firms have been identified: EDF (France), Enel
(Italy), E.ON (Germany), GDF Suez (France), Iberdrola (Spain), RWE (Germany) and Vattenfall (Sweden)
(Schülke, 2010). Four out of the five home countries (Germany, France, Italy, Spain; only Sweden is
different) are amongst the largest EU economies by GDP and energy consumption, and the largest
markets by final energy consumption, with considerable renewable energy generation activity.
We adopt the approach of Rugman and Verbeke (2004), making use of firm-level data and
their criteria for identifying the four regional orientation types MNEs might adopt. In view of limitations
in the availability of data, additional criteria were developed for ROR and ROW (see below). The
distinction between extended triad regions is followed for the purpose of this study: i.e. NAFTA, Asia
and the EU (and rest of world). Additionally, the EU is divided into four major geographic sub-regions
to allow intra-region regionalization to be identified if present. While the recognition of intra-EU
regions is not novel in itself, we are not aware of its operationalization or use in previous publications
on regionalization. We therefore developed a classification inspired by the academic literature
including those on the varieties of capitalism (Amable, 2003; Schmidt, 2000, 2002; Rhodes and Van
Apeldoorn, 1997) and informed by issues of proximity and integration of EU economies, resulting in
four sub-regions that have common coherence in terms of Ghemawat’s (2001) geographic, economic,
administrative and cultural distance dimensions: Nordic, Northern, Southern, and Central & Eastern
Europe.
The Nordic group is defined primarily by the original categorization of Amable (2003), and low
geographic distance. The Northern Europe group again takes Amable (2003) as point of departure,
with the reduced geographic distance (at least time-wise), as a result of the interconnector between
the UK and The Netherlands, as well as common approaches in these countries, justifying the inclusion
of the UK in this sub-region. The work of Schmidt (2000, 2002) and Rhodes and Van Apeldoorn (1997)
is believed to provide a justification for the exclusion of France from this group, which is instead placed

60
in the Southern European sub-region (cf. Amable’s (2003) mediterranean capitalism country grouping),
especially in light of the geographic proximity of the countries. Finally, the Central & Eastern European
sub-region includes all EU members that have achieved accession since 2004. Austria is also included
in this sub-region based on its inclusion in the Central/Eastern regional classification of European
energy markets (ENTSOE, 2010), the low geographic distance and the significant integration of
economic activity between Austria and the transition economies around it since their accession to the
EU (Huber, 2003). The remaining smaller EU members are finally ‘assigned’ based on their proximity
to the large countries in each of the sub-regions.
We first collected data on the seven electric utilities from their annual reports for the years
2000, 2005, 2010 (and also scrutinized the latest reports published). This was done through a
systematic reading of the annual reports and manual recording of quantitative and qualitative data on
their internationalization strategies and core geographical markets. In a small number of instances
(three firms for the year 2000), we took the most nearby year for which data was available (see Table
3.2 as presented and discussed in the findings section). It should be noted that the level of detail in
which these firms report on non-home markets is limited; this may be related to the nature of the
industry and the state ownership heritage (compared to listed companies). Extracting exact figures on
their presence in specific geographical markets has been rather challenging due to the paucity of
information in firms’ annual reports. Figures for company and business unit performance are usually
included in all reports. However, given that business units can be geographical, functional, or
geographical-functional in nature, obtaining exact numbers for presence in specific geographical
markets (and thereby detailed non-home country figures) proved rather difficult. In addition, business
units sometimes changed over time due to restructuring, which makes comparability between periods
challenging. Moreover, information on the recent renewable activities is also limited in availability,
and characterized by great diversity (e.g. in terms of energy sources). We therefore also analysed
qualitative statements from annual reports (included in Appendices A and B as further details and
illustration) to better understand how companies portray themselves in terms of geographical
presence and international ambitions.
For what is thus by nature an exploratory analysis, we collected data for revenues, employees,
generation capacity, and reported presence in countries. While assets are an accepted measure of
regional presence in the literature (Hejazi, 2007; Rugman and Verbeke, 2008b), the available data was
not sufficient for inclusion. Revenue is an accepted measure for assessing the downstream regional
profile of MNEs (Hejazi, 2007; Rugman and Verbeke, 2008b); this also applies to employees for the
regional profile of MNEs (Hejazi, 2007; Rugman and Oh, 2008; Rugman and Verbeke, 2004, 2008).
Generation capacity, measured in mega-watts (MW), is a sector-specific measure of MNE presence
related to the firm’s core electricity generation activities and provides a substitute for the asset

61
measure that could not be used. This is in a similar vein to the use of production capacity by Rugman
and Collinson (2004) for the study of the automotive sector, Sethi’s (2009) counting of the number of
mergers and acquisitions (M&A) deals by country of acquiring and region of acquired firms, and the
counting of stores in countries by Rugman and Girod (2003). Finally, we also counted reported
presence in a country. While this is a relatively crude measure of the regional presence of a MNE, it
does provide some indication of scope and was particularly important for this study as a mechanism
for capturing the within-region distribution of the electric utilities in the EU home region. It provided
a reliable discriminator between the within-region profiles of the firms; similar approaches have been
used in the literature on regionalization. For renewables, we worked with the data that could be found
(see Appendix B).
To obtain some further insight into developments and strategies, we also did a search of the
Financial Times reporting on the seven firms between 2000 and 2012, using the name of the firm as
key search term as a first step. This resulted in a very broad range of articles being returned, which
were then systematically reviewed to identify articles providing significant commentary on the
strategies of the focal firms. The results of this search where as follows for each firm (the first number
is the earliest year for inclusion of an article, the second the total articles returned and the third the
articles considered most relevant to firm strategy); RWE (2001; 643/34), E.ON (2001; 498/64), EDF
(2001; 1964/143), GDF Suez (2005; 1142/61), Enel (2001; 493/63), Iberdrola (2001; 753/49) and
Vattenfall (2001; 185/29). These articles were scrutinized through systematic reading on relevant
strategic and policy developments.
The exploration of this firm-specific information proceeded similar to Maguire and Hardy
(2009). We developed a narrative account of the key strategic decisions/events for each firm and
constructed a history of key events drawing on the newspaper sources and annual accounts
independently to provide a picture of its strategic evolution. This approach allows for data
triangulation, which we complimented by investigator triangulation, as all three authors considered
the data and provided an analysis. Limits on the scope of the work however did not allow a design of
the study to accommodate theoretical and methodological triangulation (Denzin, 1978). The case
analysis was completed through a within-case analysis for each firm independently and then cross-
case analysis of these firm-specific accounts to compare and contrast findings to illuminate themes
unique to specific cases and those that were common to a majority of the firms (Yin, 2003). The work
of Miles and Huberman (1994) is reflected in the use of tables to present our data and findings.

62
 3.4 Internationalization of EU electric utilities

Developments in regional orientations

Table 3.1 contains the available internationalization data for revenues, employees and generation
capacity, with an indication of basic regional orientations on these dimensions for 2000, 2005 and
2010. We collected additional information on the firms and their renewable activities
(summarized in the Appendices), which were used to assess the regionalization strategy and sub-
regional orientations for 2010, differentiating utilities’ core, ‘traditional’ generation activity from
their renewable-energy business (Table 3.2). We first discuss broader patterns of regionalization,
followed, in the next sub-section, by an exploration of utility-specific dimensions/patterns, in the
context of the (historic) role of respective home governments, derived from the different sources
specified above.
The overall development is one of considerable internationalization since the late 1990s,
considering revenues, employees and generation capacity, reflecting accompanying EU energy
liberalization. Although Table 3.1 only distinguishes between home market (country) and non-home
market, the vast majority of the available data covers European business activities, as qualitative
analyses confirmed (see e.g. Appendix A). The majority of this internationalization is therefore argued
to be home-region oriented, reflecting regionalization patterns identified by Rugman and Verbeke
(2004). The relative importance of non-home markets has clearly increased, except for GDF Suez (see
firm-specific analyses below).
Interestingly, firms’ reports show that none present themselves as home-country oriented,
instead emphasizing their geographical spread and international ambitions. They often link
internationalization and growth ambitions: i.e. seeking opportunities outside the home country and
diminishing risks through diversification of geographical portfolios to depend less on one specific
market. Concurrently, most utilities still concentrate on a small number of core markets in Europe,
which seems to reflect the phenomenon that Europe has one grid (physically), whereas commercial
strategies start from sub-regions that are interconnected through transmission agreements and
national system operators (ENTSOE, 2010).
For renewables the international spread is much greater than for core generation, often
beyond Europe (see Table 3.2 and Appendix B). Utilities’ renewable business is relatively new,
influenced by recent EU policy developments, so indicating specific patterns over time is hard; also due
to limited data availability (this is most notable for GDF Suez, which only mentions activities in Europe
and the Americas). Current renewables regional orientations show home-region foci for Enel, RWE and
Vattenfall; EDF and Iberdrola are close to bi-regionalization and E.ON is host-region oriented, all three
with a clear presence in North America.
63
 Electric utilities by geographic location (home-country; non-home country), years (2000, 2005, 2010) and
regional orientation (home-country; home-region)

PART A: Electric utilities home and non-home revenues (in € mln and % of total), and orientation (HC, HR)*
MNE Home Total Home market Non-home market
country 2010 2000 2005 2010 2000 2005 2010
RWE Germany 53,320 39,058 23,038 27,2837 23,820 18,781 23,4397
(62%) (HC) (55%) (HC) (53%) (HC) (38%) (45%) (47%)
E.ON Germany 92,863 42,0503 33,557 49,824 40,9333 22,842 43,039
(51%) (HC) (59%) (HC) (54%) (HC) (49%) (41%) (46%)
EDF1 France 65,200 26,400 30,1263 36,2003 8,024 20,9253 29,0003
(77%) (HC) (59%) (HC) (56%) (HC) (23%) (41%) (44%)
GDF Suez2 France 84,478 9,500 9,720 31,502 39,700 31,769 52,976
(21%) (HR) (23%) (HR) (37%) (HR) (79%) (77%) (63%)
Enel Italy 73,377 25,109 33,1464 30,767 - 9134 42,610
(100%) (HC) (97%) (HC) (43%) (HR) (3%) (57%)
Iberdola2 Spain 30,431 8,511 9,707 14,629 978 2,031 15,802
(90%) (HC) (83%) (HC) (48%) (HR) (10%) (17%) (52%)
Vattenfall Sweden - 2,56534 - - 94934 - -
(73%) (HC) (HR) (HR) (27%);
Nordic 23,725 3,12734 4,52234 6,30034 38734 9,82534 17,42534
(89%) (32%) (27%) (11%) (68%) (73%)

PART B: Electric utilities home and non-home employees for 2000, 2005 and 2010
RWE Germany 70,856 100,996 43,579 34,184 68,983 42,349 36,672
(59%) (HC) (51%) (HC) (48%) (HR) (41%) (49%) (52%)
E.ON Germany 85,105 103,450 43,219 35,116 83,338 36,728 49,989
(55%) (HC) (54%) (HC) (41%) (HR) (45%) (46%) (59%)
EDF1 France 158,842 110,0892 108,557 105,393 57,2202 53,003 53,499
(66%) (HC) (67%) (HC) (66%) (HC) (34%) (33%) (34%)
GDF Suez2 France 236,116 60,550 - 103, 865 127,500 - 132,251
(32%) (HR) (44%) (HR) (68%) (56%)
Enel Italy 78,313 72,647 46,663 37,383 - 5,115 40,930
(100%) (HC) (86%) (HC) (48%) (HR) (14%) (52%)
Iberdola2 Spain 29,641 9,422 9,955 11,899 2,463 7,2294 17,742
(79%) (HC) (58%) (HC) (40%) (HR) (21%) (42%) (60%)
Vattenfall Sweden 38,179 8,086 8,350 9,000 5,037 23,881 29,179
(62%) (HC) (26%) (HR) (24%) (HR) (38%) (74%) (76%)

PARTC: Electric utilities home and non-home generating capacity (MW) for 2000, 2005 and 2010
RWE Germany 52,214 - 33,418 34,028 - 9,851 18,186
(77%) (HC) (65%) (HC) (23%) (35%)
E.ON Germany 68,475 - 25,623 23,345 - 27,990 45,130
(48%) (HR) (34%) (HR) (52%) (66%)
EDF1 France 133,900 99,890 98,922 99,100 18,835 31,854 34,800
(84%) (HC) (76%) (HC) (74%) (HC) (16%) (24%) (26%)
GDF Suez2 France 78,200 - 4,8182 9,384 - 48,8042 68,816
(9%) (HR) (12%) (HR) (91%) (88%)
Enel Italy 97,281 56,609 42,216 40,522 - 3,786 56,759
(100%) (HC) (92%) (HC) (42%) (HR) (8%) (58%)
Iberdola2 Spain 44,991 18,915 24,502 25,590 1,403 3,289 19,401
(93%) (HC) (88%) (HC) (57%) (HC) (7%) (12%) (43%)
Vattenfall Sweden/ 39,932 - 16,355 16,951 - 16,093 22,981
Nordic (50%) (HR) (42%) (HR) (50%) (58%)

Sources: Companies’ annual accounts

Notes: 1) Values for either 2000 or 2001; 2) Values for 2002 or 2003; 3) Sales values; 4) Estimated value; 5) Income before
taxes; 6) Operating income; 7) home and non-home-market figures based on external sales figure (€50.722)
*HC: Home-country orientation; HR: Home-region orientation. The orientations per year are assessed based on the
assumption that the vast majority of these firms’ activities is still home-region based.

Table 3.1: Overview of the electric utilities by geographic location, years, and regional orientations

64
 Regional (and EU sub-regional) orientations of the electric utilities in 2010

Core energy business9 Renewable energy business10

RWE home-country orientation1 home-region orientation1
(bi-sub-regional in EU6) (bi-sub-regional in EU6)
E.ON home-region orientation1 host-region orientation3
(trans-European8) (tri-sub-regional in EU7)
EDF home-country orientation2 home-region1 / (home) bi-regional orientation4
(tri-sub-regional in EU7) (bi-sub-regional in EU6,11)
GDF Suez home-region orientation1 - 12
(tri-sub-regional in EU7)
Enel home-region orientation1 home-region orientation1
(uni-sub-regional in EU5) (uni-sub-regional in EU5)
Iberdrola home-region orientation1 home-region1 / (home) bi-regional orientation4
(tri-sub-regional in EU7) (bi-sub-regional in EU6)
Vattenfall home-region orientation1 Home-region orientation1
(tri-sub-regional in EU7) (bi-sub-regional in EU6)

Source: Table 3.1 and Appendices

Notes: 1) Rugman and Verbeke (2004) define a home-region orientation as when at least 50% of sales are in the home region of the
MNE, we assess our measures against this criteria; 2) Home-country orientation is a special case of the home-region orientation where
the home country presence alone is enough to meet criteria for a home-region orientation; 3) Rugman and Verbeke (2004) define a
host-region orientation as when more than 50% of sales are in a host region of the MNE, we assess our measures against this criteria;
4) Rugman and Verbeke (2004) define a bi-regional orientation as when between 20% and 50% of sales are in each of two regions. EDF
and Iberdola both meet the criteria for home-region orientation in renewables and only marginally fail to meet the criteria for a bi-
regional profile. We identify the firms as (home) bi-regional oriented firms as a secondary categorization to recognize how much more
they are internationalized in renewables compared to their traditional generation business, and competitors, but still with a dominant
home-region presence. This avoids the possibility of them mistakenly being considered bi-regional oriented firms in two host regions;
5) Uni-sub-region orientation refers to an electric utility having a presence in one of the four EU sub-regions; 6) Bi-sub-region orientation
refers to an electric utility having a presence in two of the four EU sub-regions; 7) Tri-sub-region orientation refers to an electric utility
having a presence in three of the four EU sub-regions; 8) Trans-European orientation refers to an electric utility having a presence in all
of the four EU sub-regions; 9) Sub-regional presences for the core business of electric utilities is assessed based on their presence in
major EU energy markets, as more detailed data was not available; 10) Sub-regional presences for the renewable business of electric
utility is recognized when the region accounts for 5% or more of the overall renewable business activity and / or is emphasized in the
annual accounts of a firm; 11) The renewable business sub-regional presence of EDF is made using presence in the large EU energy
markets as the data available is limited and the approach is consistent with that adopted for the core business column; 12) Insufficient
data to make an assessment.

Table 3.2: Regional (and EU sub-regional) orientations of the electric utilities

Early government support for renewables, particularly in Germany, Spain and Denmark, has been said
to have played a role in this development (Gan et al., 2007; Saidur et al., 2010). When US stimulus
programmes emerged later, European firms could leverage their (non-location bound) FSAs built up
before at home (Pinkse and Kolk, 2012). For example, of the US$1 billion 2009 clean-energy grants of
the Obama government, Iberdrola obtained 57% and E.ON almost 13% (Choma, 2009). Almost 90% of
these grants went to wind, which reflects its overall dominance in utilities’ renewables portfolios. Wind
has grown fastest in installed capacity (Saidur et al., 2010), is most developed economically and
technologically (Jacobsson and Johnson, 2000), and seems to suit utilities’ FSAs in larger-scale
investments best.

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Utility-specific regionalization dimensions
The seven electric utilities are featured by diverse historical trajectories in specific domestic contexts,
which has coloured current peculiarities (see Table 3.3 and the Appendices). Government
influence/protection has varied, and so has ownership; Vattenfall being the only fully state-owned
utility. Both EDF and Enel were established as dominant domestic utilities through government-driven
industry consolidation (in respectively the 1940s in France and the 1960s in Italy), with nuclear-energy
giant EDF receiving consistent state protection in its home market, much more than Enel (see below).
Also in France, GDF Suez emerged only towards the end of the EU energy liberalization process as
government-promoted defensive merger to protect Suez as diversified utility from foreign takeover,
which required the hasty privatisation of the previously state-owned gas monopoly GDF. In Germany,
RWE is a century-old private diversified utility with strong local government ties, while E.ON results
from the merger of two privatised conglomerates, influenced by the national government in
anticipation of EU energy policy. Iberdrola was created through a merger of two existing private
electric utilities in the early 1990s. It is worth noting that EDF and RWE, each as the dominant national
utility benefiting from consistent government support, have also been the only home-country oriented
firms (for core generation) in our sample (see below). In addition to background information on
formation, privatization and the relation to government, Table 3.3 also includes detailed information
on key mergers, acquisitions, joint ventures and disposals, which reflect each utility’s unique strategic
path. Below we will provide brief utility-specific case analyses in the context of EU energy liberalization
processes and a consolidation wave in the industry. This is followed by a discussion of the implications
of the case analyses for the broader regionalization debate to which this study aims to contribute.

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 Background information on the electric utilities
Dimensions RWE E.ON EDF GDF Suez Enel Iberdrola Vattenfall
Home Country Germany Germany France France Italy Spain Sweden

Formation Year 1898 2000 1946 2008 1962 1992 1909

Privatization Year Private Firm Private Firm 2005 (partial) GDF (partial 2004) 1999 (partial) Private Firm State Owned

Ownership Listed Listed Listed Listed Listed Listed Listed

Private 85% 100% 15% 64% ~ 69% 100% -

Public 15% - 85% 36% (golden share) ~ 31% - 100%

Emerged from a merger? No Yes Government driven industry Yes Government driven Yes Government Owned
consolidation industry consolidation
Political influence on / Yes (Local) Yes (National) Yes (National) Yes (National) Yes (National) No Yes (National)
support for firm emergence
Strategy in 2000 Diversified Utility VEBA (Conglomerate) Focused Integrated Electric GDF (SOE gas monopoly) Integrated Electric Hidrola (Private Electric) Integrated Electric
VIAG (Conglomerate) Utility SUEZ (diversified utility) Utility Iberduero (Private Elec.) Utility
Strategy in 2010 Integrated Electric Integrated Electric Integrated Electric Integrated Electric Integrated Electric Integrated Electric Integrated Electric
Integrated Gas Integrated Gas (Some Gas) Integrated Gas (Some Gas) (Some Gas) (Some Gas)
Primary mode of growth Acquisition Merger / Acquisition Acquisition Merger / Acquisition Acquisition Acquisition Acquisition
/ Joint Ventures
Primary Electricity Coal / Gas Coal / Gas / Nuclear Nuclear Gas/Hydro Gas/Hydro Gas/Renewables/Hydro Coal/Hydro/Nuclear
Generation Fuel
Key events for Mergers & Thames Water (UK, 2000) Suez Lyonnaise des Eaux (FR, EnBW (25%) (DE, 2001) Gas Natural (11.3% by Gruppo Camuzzi (40%) Endesa (ES, failed 2001) HEW (DE, 1999-2001)
Acquisitions, Joint American Water (US, 2001) failed 2000) Hidroelectrica del Cantbrico Suez) (ES, 2007) (IT, 2001) Gamesa (ES, strategic alliance, EW (75%) (PL, 2000-
Ventures and alliances Innogy (UK, 2002) PowerGen (UK, 2002) via EnBW 60% stake (ES, International Power (UK, Viesgo (ES, 2001) 2002) 2006)
Essent (NL, 2009) Ruhrgas (DE, 2002-2003) 2001) 2010-2012) Slovenske Elektrarne Gas Natural bid for Iberdrola (ES, Bewag (DE, 2001)
Graninge (SE, 2003) SPE (10%) (BE, 2001) (SK, 2004-2006) rejected by regulator 2003) GZE (75%) (PL, 2001-
Stake in Gazprom (RU, 2004) Edenor (Controling stake) (AR, Suez (BE, failed 2006- Rokas (49.9%) (GR, 2005) 2006)
Talks with Scottish Power 2001) 2008) Scottish Power (UK, 2006) VEAG (DE, 2002)
(Failed 2005) Seeboard (UK, 1998-2002) Electrica Muntenia Sud CPV Wind Ventures (US, 2007) Elsam Asset Share (DK,
Endesa Assets (ES, 2006-2007) Edison (80.7%) (IT, 2001-2011) (67.5%) (RO, 2006) EDF Approach (Rejected 2008) 2005)
OGK-4 (RU, 2007) Constellation Energy (US, OGK-5 (RU, 2007) Elektro (BR, 2011) Amec wind business
2008-2010) Endesa (ES, 2007-2009) Possible merger with RWE (Not (UK, 2008)
British Energy (UK, 2008) pursued 2011) Nuon (NL, 2009)
Key Disposals Hochtief (DE, 2004) Gelsenwasser (DE, 2003) Sale of South American Assets Italian natural gas Regulatory mandated Gas business (US, 2010) 50Hertz Transmission
Heidelberger Druckmaschinen Thuega Network of Municipal (BR/AR, 2005-2006) transmission network generating capacity, (DE, 2010)
(DE, 2004) Holdings (DE, 2009) British Energy (20%) (2009) (IT, 2011) market share falls Polish/Belgian/some
Thames Water (UK, 2006) Long-distance Distribution Network Business (UK, 2010) from 68% to 41% (IT, Finnish Assets (2011)
American Water (US, 2008) Network (DE, 2009) EnBW (25%) (DE, 2010) 2001-2005)
Apirion Distribution Network US Electric / Gas Assets (2010)
(79.4%) (DE, 2011)

Sources: Schulke (2010), Company annual accounts, Company websites; Financial Times articles (see methodology section for explanation) [Given the large number of sources for the findings presented
here, we do not provide detailed references; full referencing is available from the authors upon request].
Notes: ISO 3166 Standard Country Codes used between brackets: Argentina (AR), Belgium (BE), Brazil (BR), Denmark (DK), Greece (GR), France (FR), Germany (DE), Italy (IT), The Netherlands (NL), Poland
(PL), Romania (RO), Russian Federation (RU) Slovenia (SK), Spain (ES), Sweden (SE), United Kingdom (UK), United States of America (US).

Table 3.3: Background information on the electric utilities

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Vattenfall
Vattenfall is peculiar for being the only state-owned utility, and for its specific regionalization
trajectory. The early integration of energy markets in the Nordic region allowed Vattenfall to establish
a strong ‘home’ base. Concurrently, limits to growth in this relatively small market drove expansion
abroad to the largest CEE market (Poland) and the main Northern markets through various acquisitions
and joint ventures. This internationalization, however, changed Vattenfall from having low-fossil fuel-
based FSAs into one with an energy mix containing significant coal generation, particularly in Germany.
This change became an issue for home-market stakeholders, which in conjunction with broader
questions over the purpose of the firm brought its internationalization strategy into question. As the
only state-owned firm in the sample, Vattenfall has been most susceptible to home-country pressure,
which by 2010 drove a consolidation in its key European markets and withdrawal from many other
markets. Vattenfall now explicitly emphasizes a stronger focus on its three core Northern European
markets (Sweden, the Netherlands, Germany), which accounted for 85% of the firm’s cash flow in
2010, as central to corporate strategy. Vattenfall’s renewables generation capacity is equally
concentrated in the core Nordic and Northern European markets, particularly Denmark (27%), Sweden
(23%), the UK (23%) and the Netherlands (17%), with offshore wind power in countries in the North
Sea region standing out as key for further expansion. The search for renewables can be placed in the
context of its changed energy mix, as opportunities to offset fossil-fuel emissions are sought. Vattenfall
intends to expand its power-plant investments in low-emitting technologies from 33% of plant
investments in 2012 to 66% in 2016, with proportionally the fastest growth in wind energy, which
underlines the importance of renewables, but clearly restricted to the nearby home region.

Iberdrola
Iberdrola’s ties to the government seem relatively weak as it prevented the firm’s attempt to achieve
European scale via the domestic acquisition of Endesa. The failure to gain scale leaves Iberdrola subject
to repeated threats of being acquired (e.g. by EDF), and it invests significant effort in avoiding this
outcome, resulting in a more regional profile. Deals include a strategic alliance with domestic wind
turbine manufacturer Gamesa and a 2006 acquisition of Scottish Power, which provides the scale
needed to stay independent and helps to build Iberdrola’s unique FSAs in renewables. These FSAs play
an important part in the internationalization of the firm, and allows the most to be made of renewable-
energy incentives that governments put in place. Iberdrola is the largest wind power company in the
world, and it claims ‘global leadership in clean energy’. Spain (43%) and the UK (8%) are the largest
European renewables markets in terms of installed capacity, while the US (39%) is a core market as
well, indicating that Iberdrola almost classifies for a bi-regional focus in renewables. Deeper
geographical diversification in renewables outside the home market, thereby building on the strong

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FSAs in renewables, is a clear focus for Iberdrola given that 84% of newly installed renewable capacity
in 2010 occurred outside Spain, with 56% in the US. Overall, for its core business, Iberdrola remains
home-region oriented, with 2010 figures for the geographical spread of electricity production showing
Spain as main market with 47%, followed by Latin America (25%), the UK (18%), and the US (9%).

Enel
Enel’s home market has presented considerable challenges because the Italian government started
energy-market liberalization in 1999. Enel faced a regulator that actively sought to reduce its
dominance via mandated sales of generation capacity throughout the first half of the period. Enel
abandons its initial multi-utility strategy, with the disposal of non-core assets raising funds for potential
expansion, but due to the reduced home-market dominance, it lacks sufficient scale, and without
unique assets struggles to participate in the first wave of European consolidation. Although some
acquisitions are made (including Eastern Europe and later Russia, as first mover), no major deals are
completed. The early years of the second half of the period see Enel bid for Suez, to which the French
government responds by sponsoring the GDF-Suez merger (see below). Shortly afterwards, however,
Enel emerges as preferred alternative to E.ON in the eyes of the Spanish government for acquiring
Endesa. This results in the European scale sought, also in defence against unwelcome interest from
other utilities, and provides Enel with a strong position in Southern Europe and Latin America, although
Italy is still the main market with 43% of generation capacity in 2010. For renewables, primarily
developed through Enel Green Power, its spread is consistent with the generic profile in terms of focus
regions, but with a geographically more diverse portfolio, a presence in more different countries within
each (sub-)region, and also in North America. Italy is most prominent for renewables as well, followed
by Iberia (Spain and Portugal), and then North America, Latin America, and other European countries.
Overall, for both core generation and renewables, the large presence in Southern Europe indicates
expansion to proximate markets.

GDF Suez
When Enel makes a hostile bid for water and power group Suez in 2006, the French government
actively promotes the merger with Gas de France (GDF) to create an integrated European energy
utility. Even in the context of EU energy liberalization, the French government retains its distinctive
‘dirigiste’ tradition, in a state-led model of market coordination (cf. Bohne, 2011), sometimes leading
to contradictions and only incremental changes to existing policies; this is most notable in the EDF case
presented next. Throughout the later part of the period of investigation, the integration of GDF and
Suez takes place and, seemingly as a result, no major acquisitions are made before 2010. Although the
firm has a considerable gas market share, the French government effectively prevents GDF Suez from

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establishing major electricity generation in the home country by supporting EDF (see below), also for
nuclear assets for which EDF is preferred in 2009. GDF Suez therefore continues to look internationally
for growth. For 2010, electricity generation capacity per geographical region reflects this strong
international focus, with 57% of installed capacity in Europe (of which 45% outside France), 20% in
Asia, Pacific and Middle East, 14% in Latin America, and 9% in North America. This outward-looking
strategy appears to draw on FSAs in managing global operations; the expansion to the UK via
International Power in 2010, which pursued a comparable strategy is seen as a natural match. The
European and North American markets dominate the firm’s core activities, but at the end of the
decade, it indicates a clear intention to broaden further, with a third of investments between 2012 and
2017 aimed at pursuing growth in emerging markets. Europe remains by far the strongest contributor
to revenues in 2011 (80%), with the Asia, Pacific and Middle East region; North America; and South
America contributing with 8%, 6% and 5%, respectively. GDF Suez has an equally global renewable-
energy strategy, with presence in Europe, North America, and South America, but specific data is not
available as noted above already.

EDF
Benefiting from considerable home-government support, including (in)direct protection from
domestic and foreign competition, EDF retains monopoly-like home market shares throughout the
period studied, with a clear home-country orientation in core generation. As the EU energy market
liberalizes and consolidation begins, EDF makes a number of acquisitions in key markets; but the strong
domestic political support appears to affect the degree to which some markets are open to EDF. EDF
faces little resistance when removing a competitor on the German border by taking a stake in EnBW,
growing its business in the UK by acquiring Seeboard, acquiring a direct stake in SPE in Belgium or an
indirect one in gas supplier GVS via EnBW. Acquisitions in Southern Europe are more challenging,
however, with significant resistance from the Italian government resulting in new laws to restrict
voting rights for state-owned enterprises, a move that attract attention of the European Commission.
The indirect acquisition of Hidroelectrica del Cantabrico in Spain via EnBW (in cooperation with
Electricidade de Portugal) again leads to temporary blocking of voting rights while state ownership is
probed. State ownership clearly has an effect on the degree to which EDF experiences a liability of
foreignness in Southern Europe. As further illustration of the influence of the home country on firm
strategy, EDF faces strong criticism from the French government in 2003 for risking public money with
its internationalization strategy, and the European Commission orders it to repay €1 billion of (in)direct
state aid and guarantees.
In 2005, EDF is partially privatised and focuses attention on Europe; by 2008 it has leading
positions in UK, Italy and Germany in core generation. Unique FSAs in nuclear energy provide EDF with

70
significant strengths in the acquisition of British Energy and US Constellation Energy. It initially entered
the US nuclear sector via a strategic alliance, but his proved challenging, and ultimately requires EDF
to buy out its partner. Furthermore, EDF sells the stake in EnBW towards the end of the period, when
gaining control seems increasingly unlikely, and acquires Edison in Italy. The 2010 sales figures reflect
the developments towards three core markets, which include France, the UK and Italy with 56%, 16%
and 9%, respectively. EDF grows renewable energy in both Europe and North America during the
period, emphasizing a clear strategic choice to “embark on diversified international expansion drive
from the very outset”. Contrary to the home-country dominance for EDF as a whole, France is only of
marginal importance with 15% of installed renewable capacity, while North America accounts for 34%,
and nine other European countries jointly for 51%.

RWE
The German setting is somewhat specific for its overall corporatist model of social market coordination
and the federal structure with decentralized (partial) ownership by sub-national governments (Bohne,
2011). This is most notable in the case of RWE, with the German home market and its local political
stakeholders providing a secure and supportive environment for its internationalization. Throughout
the period studied RWE pursues a strategy of investment in core businesses and divestment of non-
core assets reflecting its abandoned multi-utility strategy to focus on electricity and gas. Divestments
also take place in Germany, where some of the retained assets are ‘rationalized’, including efficiency
improvements in operations in former Eastern Germany, facilitated by domestic energy policy reforms
in the late 1990s. UK Innogy and Essent in the Netherlands are the two major energy acquisitions which
reflect a Northern European focus, although Germany is still the dominant market. In the later part of
the period, the legacy of coal-powered generation in the context of emerging regulatory pressure for
emission reductions is an important driver for RWE’s move into renewables. In 2008, renewable-
energy activities in the RWE Group are bundled into RWE Innogy, for which the primary purpose is
defined to expand generation capacity in mature renewable-energy technologies and focus R&D
efforts and venture capital investments to develop emerging renewable-energy technologies. RWE has
built on its existing core markets for installed renewable energy capacity in terms of geographical
presence, with 81% of its installed capacity in its three main markets of Germany (32%), the UK (35%),
and The Netherlands (14%), complemented with Spain (12%) as crucial for especially wind energy.

E.ON
The German home government plays an instrumental role in the establishment of E.ON through the
merger of two formerly state-owned conglomerates in anticipation of EU energy market liberalization
and facilitating the acquisition of domestic gas assets to establish the firm as an integrated energy

71
utility. Pursuing a multi-utility strategy including electricity, gas and water, E.ON communicates a clear
European and North American focus in the early years. The integration of the German gas assets in the
home market, however, delay an intended North American expansion and initial internationalization
is directed at the UK, Eastern and Nordic Europe. E.ON generates funds for internationalization through
the sales of legacy non-core assets and then through regulator-mandated divestments in Germany,
including water assets, and is perceived to have pursued a very successful strategy of acquisitions,
although expansion into Southern European markets was initially difficult. E.ON is the only utility with
a significant trans-European home-region orientation, with a presence in all four sub-regions. Its
German home market is still dominant in terms of revenues with 54%, but this is much less the case
for employees (41%) and generation capacity (34%). Towards the end of the period, E.ON sells US
assets and pursues growth opportunities in Europe, Latin America and Asia.
Since 2007, when E.ON Climate & Renewables came into existence, renewable investments
have been rather significant with approximately €7 billion between 2007 and 2011, and another €7
billion planned for 2011 to 2016. Wind energy accounts for 96% of its installed renewable capacity.
E.ON meets the criteria for a host-region oriented strategy in renewables with 53% of activities in the
US; its European presence includes two of the major Northern European markets (Germany, UK) and
all three major Southern European markets, as well as the main market in both the Nordic (Sweden)
and CEE (Poland) sub-regions. It explicitly states a focus on the most attractive Western markets as
identified in the Country Attractiveness Index Renewables (E&Y, 2012), which in addition to the US
includes six European countries. Installed renewable capacity outside its German home market
amounts to 95%, indicating that the geographic diversification in renewables is much deeper than for
core generation. E.ON identifies dependence on political support as a key risk for sustainable market
growth in renewables, emphasizing that “support frameworks are diverse and highly volatile”. Most
recently E.ON has exited the UK nuclear sector in line with home-market institutional changes away
from this energy source that will affect the utility’s future internationalization strategy as well.

3.5 Discussion and conclusions

As discussed in the theory section, core assumptions supporting the regionalization literature are that
home-region internationalization is associated with lower liability of foreignness than expansion into
other regions, which can be reinforced by regional policy coherence, with most MNEs thus likely to
have a home-region profile. Two additional observations identify possible nuances: first, there may be
distinct regionalization patterns for different FSAs and scope of business units; second, home-region
orientations may in fact stem from a considerable home-country effect or predominance of the MNE
presence in its home market. This study explored these aspects for the main EU electric utilities, and

72
confirmed a home-region orientation for core generation, with two firms having a strong home-
country focus. Policy harmonization and market integration at the regional level appears to have
played a role in promoting regionalization of these formerly domestic utilities. Their renewables
business units show a different pattern, however, for the six firms with sufficient data: three utilities
are home-region oriented, two are close to bi-regionalization and one is host-region oriented.
Hence, while core generation confirms home-region orientations and home-market effects,
suggesting much greater liability of foreignness is experienced when internationalizing outside the
home region, this differs for renewables, supporting the argument of different FSAs and scope of this
relatively new business. Here, utilities appeared able to leverage FSAs built up at home first, supported
by renewable-policy incentives, also outside the region. The subsequent drive for renewables (as part
of ‘green-growth’ plans) in the US was an important dimension in the host-region orientation of E.ON
and the bi-regional tendency of EDF and Iberdrola. Whether such a ‘regulation drives innovation’
argument in a new shape, i.e. considering the peculiarities of MNEs (cf. Rugman and Verbeke, 1998),
holds more generally is an interesting area for further investigation, with wider relevance, beyond the
specific industry; renewable energy could well serve as possible case. There is also the question of
whether the more international orientation of renewables might affect the future development of the
other fuels and utilities’ predominant generation focus. Our study pointed at strategic expansion
opportunities based on unique FSA positions for some utilities (EDF for nuclear energy, Iberdrola for
renewable energy, for example). Additionally, it seemed that (legacy) non-core assets were central to
utilities’ ability to generate funds through disposals, for subsequent acquisitions in this asset-intensive
industry.
Our study also identified EU sub-regions (Table 3.2), which in conjunction with the accounts of
individual firm strategies, points to the potential role of home-region/country differences in the
liability of foreignness experienced by utilities, reflecting Asmussen’s (2008, 1202) observation that
“regional integration may be less effective than previously believed, and that significant barriers to
international expansion remain also within regions”. Some utilities found expanding into a EU sub-
region that did not include their home market challenging as commercial approaches often start in
nearby sub-regions. In core generation, only E.ON was present in all four sub-regions, while in
renewables, within-region expansion was also incomplete, with only E.ON present in three sub-
regions, the others in less.
Different responses of home-country governments to regional integration influenced the
position of domestic utilities, as some governments supported the emergence of a national champion,
while others did not. Furthermore, some governments ‘pushed’ utilities abroad through a considerable
liberalization of their domestic markets, while others provided a safe home market to allow utilities’
successful internationalization. These choices then shaped the degree to which other home-region

73
markets were open to firms to enter during the two phases of consolidation in the industry. Our study
thus highlights the effect of home-country public policy on utilities’ inward and outward investment
decisions, using firm-level data, providing a refinement of the macro level work by Dunning et al.
(2007). Towards the end of the period of study we also observed home-country governments with
significant stakes in the home utility reigning in their expansion to concentrate on the European region,
a finding that provides further insight into the role of residual state ownership in MNE strategy,
complementing the work of Vaaler and Schrage (2009).
These forces almost certainly played an important role in utilities’ incomplete home-region
internationalization. The influence of home-country institutions is reminiscent of the larger-scale work
by Thomas and Waring (1999) on the institutional influence in key Triad countries (US, Japan and
Germany). Our study adds an exploratory single-sector, within-region account of home-government
effects on the international strategies of the seven electric utilities, within a regional institutional policy
process. Interestingly, Thomas and Waring’s competing capitalisms approach is mirrored in the EU sub-
regions that we identified, suggesting that different degrees of liberalization within national markets
influenced utilities’ strategy, causing friction in internationalization and liabilities faced by utilities from
more protected markets versus those from more liberalized markets. However, this deserves further
investigation with a larger sample. It would also be interesting to analyse utilities in the UK and the
Netherlands, as these countries are most advanced in energy liberalization, but their home-country
incumbents have been taken over by foreign utilities. Whereas some of the aspects are idiosyncratic
for utilities, others have wider relevance, for sectors and firms confronted with government
protection/intervention and/or market liberalization; such complexities related to corporate strategy
and FSAs in the context of regionalization are not only faced by utilities.
Finally, it would also be worthwhile to explore possible differences between upstream and
downstream internationalization patterns. While we collected data on generation capacity and
employees (which can be seen as upstream) as well as revenues (downstream), this was too limited
for an analysis; the information available did not suggest differences. However, with proceeding
internationalization of the industry as well as further liberalization of the EU electricity market,
including separation of generation and sales, it may well become possible to collect better data and
thus contribute to the broader debate as to different types of FSAs and liabilities related to upstream
versus downstream (cf. Kolk and Pinkse, 2008; Li and Li, 2007; Rugman and Verbeke, 2008c). Another
phenomenon that might be further examined is the different path of internationalization in case of
two domestic electric utilities, as our preliminary findings, based on a small number of firms, suggest
that the more dominant and protected the largest player, the earlier the internationalization/
regionalization by the other. While the limited sample is a clear limitation of our paper more generally,
its findings provide insight into an industry type that has not received much attention in the

74
regionalization literature and thus also contributed to the ongoing debate by suggesting areas and
directions for follow-up research.

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Appendix A / Table 3.4: Main geographic markets for the utilities in 2010
Triad Europe (EU) NAFTA Asia Rest of World Statements on main markets from 2010 annual report
Regions
Company Northern Nordic Southern Central and Other - - -
Europe Europe Eastern Europe
RWE Germany - - Poland Turkey - - - “Among our core markets are Germany, the United Kingdom, the Benelux countries as
(HC) Czech Republic well as Central Eastern and South Eastern Europe”
United Hungary “The markets of North Western Europe continue to be attractive for us, although they still
Kingdom Slovakia harbour weak growth potential in terms of electricity and gas consumption”
Netherlands “In particular, the Central Eastern European countries and Turkey distinguish themselves
Belgium through good growth prospects”
E.ON Germany (HC) Sweden France Czech Republic Russia - - - “Europe is and will remain our home market and the main focus of our business
United Finland Italy Romania operations”
Kingdom Spain Hungary “The Central Europe business unit has significant operations in Germany, Belgium, France,
Netherlands Slovakia the Netherlands, Hungary, Czech Republic, Slovakia, Romania, and Bulgaria”
Belgium Bulgaria “The UK business unit has significant operations in the United Kingdom”
“The Nordic business unit has significant operations in Sweden and Finland”
“The New Markets business unit has solid market positions in Russia, Italy and Spain”
EDF United - France (HC) Poland - United China Brazil “The EDF Group is active in more than 30 countries. Its global operations focus on three
Kingdom Italy Austria States Vietnam core businesses: generation, networks and sales and trading”
Netherlands Spain Hungary Laos Sales (% of total) per business unit (BU): France (55%), United Kingdom (15%), Italy (9%),
Belgium Slovenia and Other International Activities (11%), so around 85%-90% of sales are generated in
Switzerland Europe with France, the UK and Italy as main markets
Other International activities (11%) includes activities in Europe (Poland, Belgium, Austria,
the Netherlands, Slovakia, Switzerland, Hungary, Germany), North America (United
States), Latin America (Brazil), and Asia (China, Vietnam, and Laos)
GDF Suez Germany - France (HC) Poland Turkey United Thailand Brazil, For electricity generation the geographical spread is: 27% Benelux & Germany, 21% Middle
United Italy Romania States Laos Argentina East, Asia & Africa, 17% Europe (other), 11% France, and 8% North America; so 55% of
Kingdom Spain Hungary Canada Singapore Chile, Peru, electricity is generated in Europe
Netherlands Greece Slovakia Mexico Panama, Geographical region Benelux & Germany includes Germany, the Netherlands, Belgium,
Belgium Portugal Costa Rica, and Luxembourg
Luxembourg United Arab Geographical region Europe includes Italy, Spain, Portugal, United Kingdom, Greece,
Emirates, Poland, Hungary, Romania, Slovakia
Bahrain Geographical region North America includes United States, Canada, and Mexico; South
Oman, Saudi America includes Brazil, Argentina, Chile, Peru, Panama and Costa Rica
Arabia, Qatar Geographical region Middle East, Asia & Africa includes United Arab Emirates, Bahrain,
Oman, Qatar, Saudi Arabia), Turkey, Thailand, Laos, and Singapore.

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 Appendix A / Table 3.4: Main geographic markets for the utilities in 2010
Triad Europe (EU) NAFTA Asia Rest of World Statements on main markets from 2010 annual report
Regions
Company Northern Nordic Southern Central and Other - - -
Europe Europe Eastern Europe
Iberdrola Germany - France Poland - United - Brazil “The Group is present in the electricity markets of 13 countries: Spain, France, Germany,
United Italy Austria States Bolivia Italy, the Netherlands, Belgium, Austria, Portugal, Switzerland, United Kingdom, Greece,
Kingdom Spain (HC) Czech Republic Mexico Guatemala Poland and the Czech Republic”
Netherlands Greece “Iberdrola is now the leading Spanish energy group, the 5th largest company on the Ibex
Belgium Portugal 35 by market capitalization, the world leader in the wind sector, and one of the five
Switzerland largest global power companies”
Revenues (% of total) per geographical area: Spain 48%, United Kingdom 27%, Rest of
Europe 1%, United States 13%, and South America 11%
Enel Belgium - France Romania Russia - - Brazil “Significant results were also achieved in the Iberia and Latin America Division in 2010.
Italy (HC) Slovakia Argentina Division’s revenues grew 15% to €31.3 billion about 25 million customers served in
Spain Bulgaria Chile Iberia and Latin America in the electricity sector and about 1 million in Iberia in the gas
Greece Colombia sector”
Portugal Peru “The foreign companies in the International Division have contributed to the Group’s
result with their excellent performance” (International Division includes Slovakia,
Russia, Romania, France, Belgium, Bulgaria)
Revenues (from third parties, % of total): Italy 50%*, Iberia 42% (of which Spain/Portugal
68%; and Latin America 32%), and International 8% *(BUs for Italy includes Sales,
Generation/Management, Infrastructure/Networks, Engineering, and Services)
The Iberia and Latin America division of Enel was established through the takeover of
Endesa (home market: Spain) in 2009
Vattenfall Germany Sweden - Poland - - - - “The core markets are Sweden, Germany and the Netherlands. In 2010 operations were
Netherlands (HC) also conducted in Belgium, Denmark, Finland, Poland and the UK”
Belgium Finland “Vattenfall’s core markets – Germany, Sweden and the Netherlands – together account
Denmark for 85%–90% of the Group’s cash flow. In these three countries' Vattenfall has advanced
market positions”
“Vattenfall’s other markets are Denmark, Finland, Poland and Belgium. The UK is not a
core market, however, it is considered to have a special role as a growth market –
particularly in offshore wind power”
Source: Annual Accounts
Notes: HC = Home Country

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Appendix B / Table 3.5: Renewable energy activities for the utilities in 2010
Company Main subsidiary Established Installed Capacity by geographical Capacity by Additional statements and information
/ business unit capacity region (MW) technology (MW)
(MW)
RWE RWE Innogy 2008 3,744 MW 32% Germany 30% Biomass RWE Innogy: “Bundling renewables activities and competencies across RWE Group”
(2012 35% United Kingdom 44% Wind Onshore “Focus on capacity growth in commercially mature renewable technologies, i.e. wind, biomass and hydro”
report) 14% Netherlands 4% Wind Offshore “Research & Development and Venture Capital to drive the development of emerging technologies, e.g. solar,
12% Spain 21% Hydro geothermal, marine”
3% Poland 1% Other “European focus”
4% Other countries renewables “RWE Innogy operates 2,430 MW of the total 3,744 MW of installed capacity of the RWE Group”
“Has approximately 1.450 employees in 5 European countries”
RWE has 797 MW in hydro-electric generation capacity (2012) which is included in the reporting for RWE in this
section
E.ON E.ON Climate & 2007 4,190 MW 53% United States 85% Wind Onshore E.ON C&R: “We focus on what we do best and where we can add the most value: Making and marketing energy
(2011 Renewables 12% Iberia 11% Wind Offshore in competitive, converging international markets”
Report) (Spain / Portugal) 4% Other E.ON C&R: “Responsible for E.ON’s global activities in industrial-scale renewable power generation”
11% United Kingdom renewables E.ON C&R: “Operating a geographically balanced portfolio with 4,190 MW capacity across Europe (47%) and
9% Italy North America (53%)”
6% Nordic E.ON C&R: “We are implementing a new strategy to transform our company into a global provider of specialized
(Sweden / Denmark) energy solutions”
5% Germany E.ON C&R: “Wind onshore focus regions: United States, United Kingdom, Poland, Nordic countries, Spain, Italy”
2% France E.ON C&R: “Has 804 employees of 36 nationalities in 11 countries, and is the global #3 in offshore wind and
2% Poland global #8 in onshore wind”
E.ON has 5,548 MW in hydro-electric generation capacity (2010) which is not included in the reporting for E.ON
in this section
EDF EDF Energies 2004 3,486 MW 51% Europe (Ex. France) 86% Wind EDF EN: “The EDF Energies Nouvelles group operates in 13 countries in Europe and in North America, and has
(2011 Nouvelles (United Kingdom, Spain, 9% Solar PV around 3,000 employees”
Report) Portugal, Italy, Germany, 5% Other EDF EN: “From the very outset, EDF Energies Nouvelles focused on expanding outside France as market
Greece, Bulgaria, renewables conditions were not very favourable in its domestic market at the time”
Belgium, Turkey) EDF EN: “From a base in several European countries and the United States, the Group gradually broadened its
34% North America sights to the whole of Europe and North America”
(United States, Canada, EDF EN: “Onshore wind, the core segment, is driving and will drive future growth thanks to the Group’s
Mexico) diversified portfolio of high-quality projects in ten countries”
15% France EDF EN: “In the space of ten years, EDF Energies Nouvelles has become a major player in the global wind energy
industry”
EDF EN: “Growth is based on diversified geographical presence and a multi-field expertise”
EDF has 21,500 MW in hydro-electric generation capacity (2010) which is not included in the reporting for EDF
in this section

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Appendix B / Table 3.5: Renewable energy activities for the utilities in 2010
Company Main subsidiary Established Installed Capacity by geographical Capacity by Additional statements and information
/ business unit capacity region (MW) technology (MW)
(MW)
GDF Suez n/s n/s 3,198 MW n/s 69% Wind GDF Suez: “GDF Suez has a production capacity of 963 MW in the biomass and biogas in Europe, where it is the
(2010 30% Biomass leader, in the United States and South America”
Report) 1% Other “There is a particular focus on wind turbines with a capacity of 2,205 MW, making the Group the leading
renewables operator on the Belgian and French markets and number two in Portugal (…) several projects are also being
run in Europe, Canada, Latin America and Morocco”
“GDF Suez is also present in the solar energy sector, including the production of photovoltaic cells and modules
in France and Belgium and investments of several dozen MW in France and Portugal”
GDF Suez has 10,744 MW in hydro-electric generation capacity (2010) which is not included in the reporting for
GDF Suez in this section
Iberdrola Iberdrola 2001 13,690 MW 43% Spain 97% Wind Iberdrola Renovables: “Installed capacity rose 9.2% to 13,690 megawatts (MW) across the Group (…)
(2011 Renovables 39% United States 3% Other approximately 57% of total installed capacity is now located outside of Spain”
Report) 8% United Kingdom renewables “With a presence in 23 countries, it has the largest project portfolio in the industry (62,613 MW) which increased
10% Other Countries by 4,197 MW in 2010”
(Brazil, Mexico, Germany, “assets in operation in the most important markets of the world (Spain, United States, United Kingdom, Republic
Hungary, France, of Ireland, Greece, France, Poland, Portugal, Mexico, Germany, Brazil, Italy and Hungary)”
Portugal, Italy, Poland, “84% of new capacity in 2010 was installed outside of Spain (with 56% in the United States), thus strengthening
Romania, Greece) the process of geographic diversification. The international area represents 57% of installed capacity.”
Iberdrola has 9,898 MW in hydro-electric generation capacity (2010) which is not included in the reporting for
Iberdrola in this section
Enel Enel Green 2008 6,102 MW 45% Italy 44% Wind Enel GP: “With more than 600 plants operating in Europe and the Americas in a total of 16 countries to date,
(2010 Power 25 % Iberia (Spain / 42% Hydroelectric the Group’s net output in 2010 amounted to 21.8 TWh”
Report) Portugal) 12% Geothermal “In Europe, Enel Green Power is present in Italy, Spain, Portugal, Greece, France, Romania and Bulgaria”
13% North America 2% Other “In North America, Enel Green Power is present in 20 US states and 2 Canadian provinces through Enel Green
(United States / Canada) renewables Power North America”
11% Latin America “In Latin America, Enel Green Power Latin America operates 33 plants in Mexico, Costa Rica, Guatemala,
(Mexico, Costa Rica, Nicaragua, Panama, El Salvador, Chile and Brazil”
Guatemala, Nicaragua, “Has 2,955 employees of which 62% work in ‘Italy and Europe’ and 24% in ‘Latin America and Iberia’”
Panama, El Salvador, Enel has 31,034 MW in hydro-electric generation capacity (2010), of which 2,539 MW is included and 28,495
Chile and Brazil) MW is not included in the reporting for Enel in this section. Excluding hydro from Enel Green Power, Italy
6% Europe excluding accounts for 36%, Iberia and Latin America for 42%, Europe (non-Italy, non-Iberia) for 9% and North America
Italy, Spain, Portugal for 13%.
(Greece, France, Bulgaria,
Romania)

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Appendix B / Table 3.5: Renewable energy activities for the utilities in 2010
Company Main subsidiary Established Installed Capacity by geographical Capacity by Additional statements and information
/ business unit capacity region (MW) technology (MW)
(MW)
Vattenfall n/s n/s 1,896 MW 27% Denmark 76% Wind Vattenfall: “Vattenfall will continue to expand in offshore wind power in the North Sea countries – the UK,
(2010 23% Sweden 24% Biomass Germany and the Netherlands – and onshore in prioritised markets”
Report) 23% United Kingdom “Vattenfall is one of the world’s leading wind power developers and operators and is currently building nine
17% Netherlands wind farms in six countries”
7% Germany “900 turbines operating in Sweden, Denmark, Germany, Poland, the Netherlands, Belgium and the UK”
3% Other Countries Vattenfall has 11,516 MW in hydro-electric generation capacity (2010) which is not included in the reporting
for Vattenfall in this section
Source: Annual Accounts
Notes: n/s = not specified

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 CHAPTER 4

THE DEVELOPMENT AND COMMERCIALIZATION OF SOLAR PV TECHNOLOGY

IN THE OIL INDUSTRY5

4.1 Introduction

The path towards achieving sustainability in energy supply on a global scale is one of the key challenges
for the twenty-first century. Since the industrial revolution, industrialized societies worldwide have
had a consistent dependence on fossil energy sources to achieve economic growth. This dependence
on fossil energy sources is still reflected in the global energy market at present. However, concerns
about global climate change and energy security, particularly due to a high dependence on oil, have
put pressure on governments to diversify their energy supply. In diversifying energy supply, the
transformation of the energy industry has been identified as a key challenge for a sustainable energy
future (Holdren, 2006; Jacobsson and Bergek, 2004; Jacobsson and Johnson, 2000; Unruh, 2000). This
suggests that incumbent firms in this industry have a vital role in the development and
commercialization process of renewable energy technologies.
When looking at the key high-potential renewable technologies for widespread diffusion, wind
energy is the most developed renewable technology. With an average annual growth rate in installed
wind power capacity between 1980 and 1998 of 55% (Jacobsson and Johnson, 2000), and an average
annual growth rate of 25% from 2002 to 2006 (REN21, 2008), wind energy has reached a cost-
competitive level with fossil fuel-based energy technologies, and is the most widespread renewable
energy technology (Gross et al., 2003). Contrary to the mature development stage of wind power, solar
photovoltaic (PV) technology is an emerging technology, which grew relatively slow in the 1990s, i.e.
22% annually (Jacobsson and Johnson, 2000). However, from 2000 onwards, investments in solar PV
capacity have increased considerably, even leading up to an annual growth rate of 70% in grid-
connected solar PV instalments in 2008 (REN21, 2009), and has thus become the fastest growing
energy technology worldwide.
With this global momentum in the growth of solar PV technology, a major avenue emerges to
analyse the strategic approach of incumbent firms in the energy industry towards the development
and commercialization of solar PV technology, as their powerful position in the industry might give

5
This chapter was published in Energy Policy, 2012, 40, 11-20, with Johan Pinkse as co-author (for more details,
see co-author statements included elsewhere in this dissertation).

81
them a pivotal position in the diffusion process of solar PV. The main aim of this paper is therefore to
provide a comparative analysis of oil incumbents’ strategies regarding the development and
commercialization of solar PV technology. To investigate this, we have conducted a multiple case study
within the European oil industry to compare and contrast the three largest oil firms – British Petroleum
(BP), Shell, and Total – with regard to their perception of renewable energy technologies in the context
of future energy supply as well as their investment behaviour in solar PV technology from the mid-
1990s onwards. Before exploring these aspects empirically, however, we will first briefly provide a
background on the diffusion process of renewable energy technologies.

4.2 Towards the diffusion of renewable energy technologies

Renewable energy has the potential to replace conventional fuels in four distinct sectors: power
generation (grid-connected), transport fuels, water and space heating, and rural (off-grid) energy
(REN21, 2008). As each of these energy sectors has its own characteristics, a renewable energy future
is unlikely to depend on a single prevailing ‘silver bullet’ technology ending fossil fuel dependence.
Instead, a wide spectrum of various renewable technologies will be more suitable for meeting the
diverging demands of each of these four sectors. As Gross et al. (2003) identify, one of the most notable
features of renewable forms of energy is the diversity of technologies, thereby indicating that
renewable energy diffusion will lead to diversification in energy sources making energy markets less
dependent on fossil fuels as a single source of energy.
Experimentation with various renewable energy sources on a non-commercial basis
commenced around 1973, when governments started investing considerable amounts of money on
renewable energy research and development (R&D) as a reaction to the first major oil crisis in that
same year (Jacobsson and Johnson, 2000). Since the early 1990s, commercial development of various
forms of renewable sources has occurred, resulting in a range of modern renewable technologies of
which solar PV, wind power, concentrating solar power (thermal and PV), marine power (wave and
tidal), and modern biomass offer the best opportunities for widespread diffusion. Conventional
renewable sources, predominantly traditional biomass and large hydroelectric installations, supplied
around 17% of the world’s energy demand around the start of the century, but do not offer significant
sustainable growth opportunities towards the future (Gross et al., 2003). Although modern renewable
technologies currently account for only 1% of the world’s energy demand, projections of their
contribution in meeting the world’s energy demand around 2050 range from 20% to 50% (World
Energy Assessment, 2000).

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Embedded in the larger development of moving from fossil fuels to renewable technologies, solar PV
has emerged as the fastest-growing technology in recent years with huge diffusion potential towards
the future. The first commercial efforts to develop solar PV technology were initiated by the oil crises
of the early 1970s, with governments investing in R&D to develop a solar alternative to fossil fuels
(Tsur et al., 2000). However, these policies for stimulating solar investments lacked a long-term
perspective and were strongly correlated with fossil-fuel price fluctuations. With fossil-fuel prices
decreasing in the mid-1970s, investments in solar R&D decreased tremendously, with technological
development only continuing for several smaller niche markets. From the mid-1980s to mid-1990s
solar PV capacity started to grow with a modest growth rate of 15% (Gross et al, 2003), with an
increasing importance for grid-connected systems after 1995 (World Energy Assessment, 2000).
Influenced by an increasing awareness of issues such as energy independence and negative
environmental consequences (e.g. climate change) of fossil fuel combustion in the early 1990s, R&D
investments became more centred on developing a long-term-oriented alternative to fossil fuels
compared to the 1970s. Investments in solar PV increased extensively after 2000 due to increased cell
efficiency, reduced capital costs, and favourable policy, leading to annual growth in grid-connected
solar capacity of 60% from 2002 onwards (REN21, 2008).
The most vital component of solar PV technology is the solar cell, as the solar cell establishes
the photovoltaic effect and therefore determines the conversion efficiency. Growth potential of solar
PV essentially depends on two aspects: the achieved conversion ratio in the solar cell and the capital
costs (installation and materials) associated with solar cell production. Solar cell types currently being
commercialized are single-crystal cells (17% efficiency in 2007), polycrystalline (15% efficiency in 2007)
and amorphous silicon (10% efficiency in 2007), which all are considered to be the first generation PV
technologies. These technologies require major energy and labour inputs, which prevent significant
production costs reductions, but are currently the most-installed type of solar cells (REN21, 2008).
Second generation solar cells offer much greater potential for cost reductions and efficiency
enhancement. These are thin-film cells that currently offer only 9-12% efficiency, but are in an early
development stage with extraordinarily high potential for conversion ratios up to 60%, compared to
30% for first generation cells. In 2007, only 7% of solar cell production was thin-film cells, but they
gained acceptance as a mainstream solar cell due to manufacturing maturity and decreased production
costs. Despite this acceptance, conversion ratios are far from their potential, making it more viable to
further invest in R&D before large-scale commercialization will take place (REN21, 2008). Goetzberger
et al. (2002) define three scenarios for cell efficiency enhancement and cost reductions: (1) the
continued dominance of present single-crystal and polycrystalline cells, (2) the introduction of new
crystalline thin-film materials of medium thickness, and (3) the breakthrough of true thin-film materials

83
that could potentially dramatically increase cell efficiency. All scenarios are equally plausible on the
long term, although the first and second generation solar cells are more short-term oriented and
currently visible in the market, while third generation is more likely to occur in a longer timeframe
(Gross et al., 2003).
From an industry life cycle perspective, two main phases in industry evolution can be
identified: a formative period and a market expansion period (Jacobsson and Bergek, 2004; Klepper,
1997; Utterback and Abernathy, 1975). The formative period is characterized by uncertainty in
technologies, markets, and regulations, whereby a range of competing technology designs exist.
Within this formative period, Jacobsson and Bergek (2004) identify four process features: market
formation, entry of firms and organizations, institutional change, and the formation of technology-
specific advocacy networks. All four features are beginning to emerge in the solar PV industry, whereby
the first two are especially interesting in the light of this paper. Market formation is characterized by
growth in multiple niche markets for which the technology is superior, usually also involving favourable
government policy and investment incentives. It appears that the solar PV industry entered its market
formation stage around 2004, when favourable policy towards solar PV became more widespread and
solar PV was developed for multiple grid-connected and off-grid niche applications. This phenomenon
is referred to as ‘protected spaces’ or niches, where technological learning process can take place, and
where price of performance of the technology can be improved (Jacobsson and Bergek, 2004; Kemp
et al., 1998).
Three factors are particularly important in this industry’s formative period. First, solar cell
efficiency and capital cost reduction for large-scale diffusion need to be achieved (Goetzberger et al.,
2002; Gross et al., 2003; REN21, 2008). Second, policy should be developed to allow development in
solar PV niche markets to support the learning effect from ‘learning by doing’, which positively
influences large-scale diffusion of solar PV technology (Gross et al., 2003). Tsur et al. (2000) suggest
that this diffusion process should be evolutionary rather than revolutionary in nature, also emphasizing
that government-funded stimulating R&D programmes should be adopted that are substantial and
persistent in nature. Third, firm entry is essential in shaping the development path of an emerging
technology, predominantly due to the resources and competences they bring into the industry
(Jacobsson and Bergek, 2004). With solar PV growing tremendously, and huge opportunities for firms
from various backgrounds to enter this growing market, assessing the impact of businesses on solar
PV development is therefore essential.

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 4.3 Solar PV diffusion in the oil industry: a research model

To investigate the behaviour of incumbent firms in the oil industry regarding solar PV development
and commercialization, we applied a multiple case study methodology. This methodology facilitates
gaining rich understanding of the context in which the phenomenon is embedded (Yin, 1994). In this
paper, the unique phenomenon is the emergence of a renewable energy technology in the oil industry,
which is fundamentally different from the fossil fuel-based technologies that are currently widely
diffused in the supply chains of large oil incumbents. As our sample we chose three major players in
the European oil industry, which have made ‘substantial’ investments in solar PV in the recent past:
BP, Shell, and Total. We collected data about corporate behaviour on solar PV development and
commercialization from both corporate and independent third-party sources, thereby assessing
whether the articulated corporate position of these firms on the importance of solar PV technology
was in line with perceptions from outside. Data collection included corporate publications (i.e. firm
annual reports and CSR/sustainability reports), publications of trade associations (i.e. the European PV
Industry Association, the Energy, Solar Energy Industries Association, and the Solar Electric Power
Association), and newspaper and magazine articles (i.e. New York Times, Wall Street Journal,
Washington Post, Guardian, Economist, and Time magazine).
To guide the analysis of the data, we first developed a research model (see figure 1). Our
starting point was the assumption that the emergence of solar PV technology in the established oil
industry presents incumbent firms with a fairly disruptive technological innovation. Literature on the
emergence of disruptive innovations shows that small entrepreneurial ventures provide the more
heterodox, breakthrough innovations, while incumbent firms generally engage in incremental,
sustaining innovations to optimize technology performance (Baumol, 2002; Bower and Christensen,
1995). At the same time, however, the bulk of expenditures in R&D and related innovative activities,
are not carried out by small entrepreneurial ventures but by large oligopolistic firms (Ahuja and
Lampert, 2001; Baumol, 2002). With the model we therefore envisaged gaining understanding of how
incumbent firms can stimulate the development and commercialization of disruptive technological
innovations, including the use of acquisitions and joint ventures as ways to gain control over disruptive
innovations, rather than gaining insight into how small entrepreneurial ventures introduce new
innovations and organically grow into larger corporations.

85
 Oil industry dynamics

Complementary Internal Mainstream

development market

Firm Firm
Technology Technology Technology
resources and solar PV
perception development commercialization
competences investment

Non- External Niche

complementary acquisition market

Solar industry dynamics

Figure 4.1: Solar PV technology diffusion: a research model

The model is built around the innovation process of firms, which comprises the invention and
development of a technology as well as the commercialization in the market. This process requires
various resources and competences such as technology accumulation, strategic networking through
alliance formation, and being responsive to market needs (Rothwell, 1994). The central notion in the
innovation process is that firms make strategic decisions and position themselves on renewables taking
account of firm-specific factors to leverage internal resources and competences as well as contextual
factors to anticipate external industry dynamics (Kolk and Levy, 2004). We considered firm-specific
factors related to development and commercialization decisions along the following steps in the
innovation process: (1) what is the strategic nature of solar PV technology in relation to firms’ core
business goals; (2) what is the incumbent’s strategy towards the development of the emerging
technology; and (3) what is the incumbent’s approach for commercializing the emerging technology?
In answering these questions, we also reckoned with contextual factors related to industry dynamics,
where we made a distinction between oil industry dynamics and solar industry dynamics. The
motivation behind this is that oil firms investing in solar technology operate at the intersection of both
industries. Therefore, contextual factors not only concern those affecting market formation in the solar
industry, but also factors shaping the oil industry’s market structure. While some factors such as oil
price changes or the global financial crisis have an effect on dynamics in both industries, other factors
such as renewable energy policy or firm entry/exit are more industry-specific.

86
Technology perception: complementary vs. non-complementary
Firstly, the model posits that the strategy of oil firms in solar PV diffusion depends on oil incumbents’
perception of solar PV technology in terms of degree of complementarity to core business activities
(Davis, 2006; Milgrom and Roberts, 1990). The concept of complementarity refers to the relation
between different business activities such as R&D, manufacturing and marketing which firms pursue,
implying that a fit between activities leads to higher economic returns (Milgrom and Roberts, 1990;
Jacobides et al., 2006). Whether the development, manufacturing and marketing of solar PV have
many complementarities with core business activities of oil firms is contestable. Throughout the
vertically integrated supply chain of oil firms, the resources and competences needed to operate both
upstream and downstream activities are related to fossil-fuel supply (Davis, 2006). Therefore, on the
face of it, a disruptive technology such as solar PV cannot build on existing attributes related to
upstream extraction activities and downstream refining, which are (still) crucial for the oil industry, but
introduce a new set of attributes that potentially depreciate the value of the attributes historically
valued by mainstream customers (Bower and Christensen, 1995). The main problem is that solar PV
requires much corporate R&D to achieve cost-effectiveness of the technology. However, R&D
investments in the oil industry have predominantly been aimed at refining and petrochemicals; R&D
budgets have decreased considerably; and these investments have exhibited relatively low rates of
return (Davis, 2006). Solar PV technology would thus mean that activities throughout the whole supply
chain have to change fundamentally, which would require different resources and competences than
currently owned by oil firms (Kolk and Pinkse, 2008).
Nonetheless, it is not uncommon either for firms to invest in technologies, which are not
complementary to core business activities. Besides investing in sustaining technologies, incumbents
also invest in disruptive technologies for reasons of diversification and exploration of potential future
growth markets (Bower and Christensen, 1995). Whether the oil industry considers renewable energy
as a future growth market has differed considerably across firms (Levy and Kolk, 2002), and even within
firms the outlook changed over time, depending on how various scenarios on the stake of renewables
in global energy supply evolved (Backer and Clark, 2008). To what extent oil firms are willing to diversify
into solar also depends on the general corporate strategy, which in the case of oil firms has changed
considerably over the past decades (Grant, 2005; Grant and Cibin, 1996). After the oil crises of the
1970s, which led to a decline in demand for oil and an emergence of state-owned enterprises, the oil
industry has become very turbulent and competitive. In response, oil firms pursued diversification in
related and unrelated activities on a massive scale, including solar PV. In the period from the mid-
1980s to mid-1990s, however, this trend reversed from diversification to massive restructuring and a
focus on core business (Grant, 2005). Due to declining oil prices and increased emphasis on short-term

87
profitability, most non-core activities were divested during this period, but remarkably solar
technology was maintained in most large oil firms (Davis, 2006; Grant and Cibin, 1996). In other words,
while non-complementarity seemed no real obstacle during the 1980s, in the 1990s this became more
of an issue. Yet, it must be noted that the perception of what core business constitutes also changed
during the 1990s, as some companies broadened their mission from ‘oil’ to ‘energy’ firms (Kolk and
Levy, 2001). Still, when a technology is perceived strategically significant but non-complementary,
firms will most likely locate the initial market for introducing the disruptive technology outside existing
mainstream markets that incumbents serve and set up an independent organization, isolated from
core activities (Bower and Christensen, 1995).

Technology development: internal development vs. external acquisition

Secondly, the strategy of oil firms for solar PV diffusion depends on the way the technology
development is organized, that is, whether they opt for internal development or external acquisition.
As mentioned above, in the technological development of solar PV, solar cell development is the key
element where innovation takes place and two elements are crucial for the potential for large-scale
diffusion: solar cell efficiency and capital cost reduction (Goetzberger et al., 2002; Gross et al., 2003).
But, how do oil firms achieve such scale effects when solar PV lies outside oil firms’ major innovation
activities? The fact that solar PV seemingly lacks complementarity with core oil activities means that
oil firms face the challenge of developing new resources and competences, as they cannot rely on
earlier investments in this area. Not surprisingly, in the past, the oil industry has expressed different
views on technology development paths for solar PV (Levy and Kolk, 2002). It has been posited, for
example, that competences in solar PV take time to develop and early investments are necessary to
develop scale, learning and complementarities, which corresponds to preference for internal
development, enabling these effects to materialize. Alternatively, it has been argued that, since they
lack the required competences for solar PV, oil firms should only invest in this technology when the
external environment for renewables has become less risky. This view has mainly been fuelled by past
experiences in the industry of failed diversification – also in renewable energy – thus leading to
preference for external acquisition when the ‘time is right’ (Davis, 2006; Levy and Kolk, 2002).
There are also potential other reasons for deciding on internal growth versus external
acquisition, which are related to the high vertical integration that has traditionally characterized the
organization of oil firms (Grant and Cibin, 1996). In the past, oil firms have owed most of their success
to controlling the whole value chain. And, even though there was a trend towards vertical
disintegration in the 1980s and 1990s, recent expansion in natural gas has again been carried out by
covering the complete chain from exploration to marketing (Grant, 2005). However, the vertically

88
integrated firm tends to be equated with a view of incumbent-led technological development devoted
to routinized innovation processes for increasing product and process reliability, based on a
conservative approach with bureaucratic control (Baumol, 2002, 6). Moreover, this way of organizing
has been portrayed as ‘closed innovation’, where incumbents generate, develop, and commercialize
their own ideas and innovations, based on a philosophy of self-reliance in which innovation activities
are based on control and substantial investments in internal R&D (Chesbrough, 2003). Recently,
however, a fundamental shift has been observed in the process of how firms generate ideas, develop
innovations, and commercialize these ideas and innovations to the market from closed to open
innovation. In ‘open innovation’, an organization ‘commercializes both internally and externally
developed innovations, by deploying both outside and in-house pathways to the market’ (Chesbrough
2003, 37).
For the development and commercialization of solar PV technologies, the philosophy of self-
reliance underlying the closed innovation model will be complex; oil firms cannot rely on historical
R&D investments in this area, and achieving intra-firm complementarities between solar PV and oil
activities is intricate. In contrast, applying the concept of open innovation to solar PV technology
development and commercialization seems sensible as incumbent firms can commercialize solar PV
technology outside their own supply chain, and develop inter-firm complementarities instead (Davis,
2006). Even so, what will be crucial, then, in determining how oil firms develop solar PV technology, is
a firm’s financial investment power. If, therefore, financial investment power through generated
income is exceptionally strong, which is usually so when oil prices are high, they will most likely use
this to externally acquire solar technology and knowledge, rather than develop it internally.

Technology commercialization: mainstream market vs. niche market

Thirdly, when it comes to commercialization of solar PV technology, the focus is on downstream
activities in the supply chain, particularly the distribution, marketing and sales activities to deliver
energy to customers. The main question is whether market penetration in mainstream markets is
possible or firms can merely establish one or more market niches (Raven, 2007). For oil firms, all end-
product categories (light, medium, and heavy distillates) are fully based on fossil fuel supply. Both end-
users in the industrial market and consumer market rely on the supply of fossil fuels which are
currently non-substitutable, as this would require a major technological shift in various fossil fuel-
based industries, such as steel, chemicals, and construction as well as in consumer behaviour regarding
transportation. In other words, the fossil fuel dependence of end-users also enforces the carbon lock-
in of this industry (Unruh, 2000). Therefore, key downstream activities of oil firms do not really fit solar
energy supply. Then again, solar PV does give oil firms the opportunity to enter new niche markets,

89
which is enhanced by the fact that solar PV is a modular technology that can be fairly easily integrated
into final consumer products (Davis, 2006).
Moreover, comparing the emerging solar market with the mature oil market provides a false
picture of the commercialization potential of solar PV. To assess the potential for large-scale
commercialization, it is more useful to consider the solar PV market in isolation and compare different
niches within this market. For example, there are important differences between grid-connected and
off-grid solar systems in their potential for mass production. Grid-connected systems are more suitable
for mass production compared to off-grid applications, because the latter often require on-site
customization and alternative business models to reach the customer (Shum and Watanabe, 2007).
Nevertheless, grid-connected solar systems have the disadvantage that they have to compete directly
with other electricity generation technologies, whereas off-grid applications are more often
implemented in developing countries with inadequate of lacking electricity infrastructures (Davis,
2006). Another case in point regarding large-scale commercialization of solar PV is the role of
government-initiated investment stimulation for solar PV technology. Feed-in tariffs implemented
during the 2000s, which have particularly been successful in Germany and Spain, have stimulated the
creation of markets for solar PV (Jäger-Waldau, 2009). Still, whether oil firms could benefit from these
energy policy measures depends much on the precise their provisions (Reiche and Bechberger, 2004).

4.4 Solar PV in the oil industry

BP
In comparison to other oil firms, BP has the longest history in the development and commercialization
of solar energy, with BP’s first solar activities dating back to 1980, and BP’s establishment as the world’s
largest vertically integrated solar PV firm in 1999. Within BP, PV technology was built as a separate
product class from 1980 onwards, which eventually led to the establishment of a separate BP
Alternative Energy division in 2005. The growth process of BP Solar towards its current position as one
of the larger solar companies worldwide has thus been achieved by setting up a separate solar division
outside existing fossil fuel-based activities to cope with a technology that is potentially disruptive.
Nevertheless, the fact that BP entered the solar industry at such an early point in time, and has
consistently built its position in the market, indicates that BP perceived the technology as strategically
important.
The first milestone in BP’s solar activities was in 1980, when BP entered the solar market
through the acquisition of solar company Lucas Energy Systems. This step was part of a broader
diversification strategy (BP for example also entered the coal business, minerals and information
technology), then common in the oil industry, as it was a response to the 1970s oil crises and slowing

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growth (Grant and Cibin, 1996). A second milestone was the speech of BP chief executive John Browne
at Stanford University in May 1997, where he pledged to increase investments in solar from US$100
million to US$1 billion a year. Interestingly, this commitment to solar was no longer considered as
diversification, but part of a strategy to be responsive to the issue of climate change (Levy and Kolk,
2002; Sæverud and Skjærseth, 2007). This pledge was followed up in 1999, when BP Solar established
itself as the largest vertically integrated solar company in the world, through the acquisition of all of
shares in Solarex (a company made up of former solar activities of Exxon, Enron and Amoco), creating
BP Solar as it exists at present. Although BP perceived solar technology as disruptive, at this time it was
not necessarily considered as non-complementary. In 2000, BP repositioned its mission from an
exclusive focus on oil towards a broader focus on energy, which was accompanied by a rebranding
campaign with the Helios logo and the ‘Beyond Petroleum’ slogan as main outcomes (Kolk and Levy,
2001).
What is remarkable about BP Solar is the different perception of crystalline solar technology
in comparison to thin-film technology. Until 2002, BP had a strong position in crystalline technology in
both manufacturing and sales, but simultaneously engaged in innovation of thin-film technology. In
2002, BP decided to abandon further developing thin-film technology and focus solely on crystalline-
based technology, based on the rationale that thin-film in its 2002 development stage was
economically uninteresting. BP Solar’s consistent commitment to crystalline-based technology was
enforced in 2006 when BP invested US$5 million to a five-year research project on The California
Institute of Technology, to develop a more efficient way of producing crystalline solar cells making
solar manufacturing costs more competitive. BP Solar’s decision to consistently build a position in
crystalline solar cells and not engage in thin-film technology is noteworthy, because crystalline-based
technology has limited possibilities for radical performance enhancement (Goetzberger et al., 2002;
Gross et al., 2003).
A consistent and crucial factor for BP’s development of solar technology has been its
engagement in acquisitions and joint ventures. BP achieved growth in its solar business in the 1980s
and 1990s by building a global network of manufacturing facilities, mainly through acquisitions of
existing solar manufacturing plants, and sales offices in multiple countries, most notably the above-
mentioned acquisitions of Lucas Energy Systems and Solarex. Besides acquisitions, BP also engaged in
joint ventures to gain access to specific geographical markets. In 1989, BP entered a joint venture with
Tata Energy to establish its position in the Indian market, while in 2005 BP Solar partnered with China-
based solar company SunOasis to build its position in the Chinese market. A key observation regarding
technology development is BP‘s consistent focus on achieving scale advantages to reach cost-
competitiveness with widely diffused energy technologies, both in manufacturing activities and solar

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power plants. For manufacturing, this already started in 1997, when BP announced investing US$20
million to establish one centralized manufacturing plant for the US market, and was continued until
2008, when BP decided to focus manufacturing activities on the four largest plants in the US, Spain,
China and India. Regarding solar power plants the focus on scale is illustrated by BP’s projects in
Portugal and Spain in 2005 where it profited from feed-in tariffs: in Portugal BP Solar constructed a
large 62 MW power plant of 350.000 solar panels delivering electricity to 22.000 homes, while in Spain
BP built 278 small power plants across Spain with a joined capacity of 18 to 25 MW, thereby providing
electricity to 12.500 homes.
When assessing commercialization, the acquisitions and joint ventures also point at BP’s
external focus in the context of marketing solar products. In building its position in the solar market,
BP followed a strategy of entering multiple niche markets while simultaneously improving crystalline
technology. In the context of BP Solar’s leading position in the global solar industry and the vertically
integrated nature of the company’s solar activities since the 1999 takeover of Solarex, BP Solar has
become a mainstream player in the solar industry. To illustrate, in 2001 BP had become the second
largest solar PV firm with annual sales of 58 mega-watts (MW). Nevertheless, even though BP Solar’s
sales climbed steadily over the years its leading position declined from being number 2 in 2002 (73.8
MW) to number 7 in 2005 (90 MW) and number 16 in 2008 (156 MW), as it was surpassed by
specialized solar firms including Q-Cells, Suntech and First Solar (Jäger-Waldau, 2002, 2003, 2006,
2009).
The focus on controlling costs seems crucial when looking at the most recent developments in
BP Solar. The financial crisis and economic recession negatively affected the position of BP Solar, which
translated into major cost reductions through cutting 28% of BP Solar’s workforce, predominantly in
the US and Spain. Not surprisingly, BP recently decided to subcontract solar panel manufacturing to
China and India, dismantling the vertically integrated solar firm, and only retain those activities where
value can be created. In addition, with BP Alternative Energy making a loss of US$800 million in 2008,
while BP as a whole was profitable, the announced budget cuts in BP Alternative Energy of at least
US$400 million for 2009, and BP’s recent investment in upstream activities that include winning oil
from Canadian tar sands (BP 2008, 5), it is of vital importance to reach cost-competitiveness for solar
PV technologies within a limited timeframe. Within BP a lack of profitability of renewable energy
technologies could thus be a strong driver for divestiture decisions.

Shell
In its approach towards solar technology, not only has Shell long been a follower of BP, but also more
modest, applying a lower public profile (Levy and Kolk, 2002). Shell also started investing in solar in the

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1980s as part of a diversification strategy (Eikeland et al., 2004; Grant and Cibin, 1996), but on a much
smaller scale. The first real milestone for Shell was in October 1997, when it committed to investing
US$250 million in its solar manufacturing over the next five years. This was considered a way of
repositioning the firm on climate change as well as a response to BP’s recent shift on the issue (Levy
and Kolk, 2002). What is particularly noteworthy about this commitment is that investments in
renewable energy were heralded as Shell’s ‘fifth core business’ (Boulton, 1997). However, over the
past years Shell’s stance towards solar PV has become more reserved and the firm has recently
reiterated that the primary focus is upon sustaining reliable and responsible fossil energy supply (Shell,
2008). According to former Shell CEO Van der Veer, Shell expected around 80% of all the firm’s capital
investments to be in upstream projects (Shell, 2008). With respect to the importance of renewable
energy technologies for Shell, CEO Van der Veer stated in the 2008 sustainability report (2008, 1):
“While our primary focus continues to be delivering oil and natural gas responsibly, we also made
progress developing renewable energy.”
Compared to BP, Shell’s investment and divestiture decisions in solar PV have been poised in
uncertainty and exhibited a rather erratic pattern with sudden changes in perceived prospects of solar
as a future growth market (Backer and Clark, 2008). However, already when Shell started showing a
renewed interest in the solar business in 1997, the firm was relatively cautious in its statements about
the future outlook of solar, emphasizing that it would position it as a supplement to its oil business,
not as a substitute. In other words, Shell has always perceived solar technology as potentially
disruptive and non-complementary to mainstream oil activities, as reflected by the fact that Shell’s
renewables division was neither embedded in the fossil fuel-based supply chain nor focused on serving
Shell’s mainstream customers in Shell’s oil business. From its conception, Shell Solar was integrated in
the Shell Renewables division, which in turn was as a separate division outside existing divisions of
upstream (exploration and production and gas and power) and downstream (oil products, oil sands,
and chemicals) divisions.
Reticence towards investing in solar PV has culminated in a series of divestitures, which started
with selling all crystalline activities in 2006 to Solar World, as Shell perceived this technology as
economically uninteresting for large-scale diffusion. This continued until the final decision in 2009 to
divest all renewable technologies including solar, wind and hydrogen. A statement of Shell on the
rationale for divesting most renewable energy technologies while investing in biofuels is a case in
point: ‘Shell will be stepping up efforts in sustainable sourced transport biofuels as the area of focus
for renewable energy activities, as biofuels are closest to our fuel business, which means Shell can add
real value’ (Shell 2008, 10). The fact that biofuels can be integrated into the supply chain is a key
determinant for Shell to further invest in this form of renewable energy. Despite pulling out of

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renewable technologies, Shell not only announced to increase investments in its bio-fuels activities,
but also to concentrate on developing cleaner ways of using fossil fuels through carbon capture and
storage (CCS). In other words, as a way of coping with climate change, CCS is more attractive than
other renewables including solar because it allows continuation of fossil fuel supply with lower
emissions (Pinkse and Kolk, 2010), but was not yet available when climate change became salient to
the oil industry in the 1990s.
Moving to Shell’s strategy for developing solar PV technology, the joint venture structure that
Shell Solar adopted for technology development between 2001 and 2006 shows that Shell focused on
the external acquisition of complementary resources and competences for solar PV development;
reasonable since Shell’s innovation capacity is in fossil fuel technologies, with 80% of all technology
innovation expenditures going to fossil fuel-based upstream technology development (Shell, 2008).
First, in 2001, Shell Solar (33%) entered a joint venture with Siemens (34%) and E.ON (33%) for
technological innovation in crystalline-based cell technologies. In 2002, through the acquisition of
100% of the shares in the Shell-Siemens-E.ON joint venture, Shell established access to both mono-
crystalline and multi-crystalline cell technologies, then mainstream solar technologies, and thin-film
technology, which was in an early development stage in 2002. After this acquisition, Shell had
transformed Shell Solar into a vertically integrated solar company, which included R&D, manufacturing
and marketing of solar PV (Jäger-Waldau, 2004). Second, in 2006, after selling all its crystalline-based
activities to Solar World, Shell again entered a joint venture with Saint-Gobain, to develop the next
generation thin-film based solar cell in AVENCIS. Although both joint ventures were with incumbent
firms and cross-industry in nature, an interesting difference between the Shell-Saint-Gobain joint
venture in 2006 and Shell-E.ON-Siemens joint venture in 2002 is the difference in industry of Shell’s
joint venture partners. However, a more important observation in this context remains Shell’s
engagement in joint ventures with incumbent firms instead of small technology-based entrepreneurial
ventures.
Looking at the commercialization of solar PV, in the initial growth phase between 1997 and
2001, Shell Solar served two distinct markets: grid-connected solar systems and rural electrification. In
the context of energy supply, both markets were niche markets compared to other technologies for
electricity generation, and both markets were outside Shell’s existing oil business, yet becoming
mainstream within the solar industry. Simultaneously, as of the Shell-Siemens-E.ON joint venture,
focus has come on innovating in crystalline solar PV technology; the most widely diffused solar
technology at that time. With Shell’s acquisition of all shares in that joint venture in 2002, Shell gained
access to a global network consisting of professional distributors and sales partners with sales offices
worldwide for mono-crystalline, multi-crystalline cell and thin-film technologies; thus steadily building

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its position in multiple niche markets. The growth in multiple niche markets led Shell Solar to become
the second largest solar company in the world in 2003 with 73 MW in sales (Jäger-Waldau, 2004).
Initially Shell appeared to be on a path of commercializing solar PV beyond niche markets to larger and
broader mass markets. With the 2006 Shell-Saint-Gobain joint venture for the development of thin-
film based CIS technology, and the divestiture of crystalline-based activities in that same year, Shell
appeared to be seriously building its position in solar PV technology even further through developing
a new generation solar cell suited for large-scale diffusion. However, with the 2009 decision to
abandon all solar activities, it has become clear that at present Shell has no intention to further develop
solar PV technology into mainstream markets.

Total
In contrast to BP and Shell, Total has only become a ‘supermajor’ quite recently, after it merged with
PetroFina in 1999 and Elf Aquitaine in 2000, which was part of the wave of mergers occurring in 1995-
2002 period (Grant, 2005). Moreover, for a long time, Total was a state-owned enterprise and even
after the French government reduced its stake; it has maintained close relations with Total (Buchan
and Mallet, 2001; Van de Wateringen, 2005). Presumably, due to Total’s distinct history of becoming
one of the largest oil firms while being state-owned first, it has been a relative latecomer in the solar
business. At any rate, at the end of the 1990s, when BP and Shell renewed their investments in solar,
Total was not under the same kind of pressure from non-governmental organizations to deal with
climate change, because it was still fairly small and to some measure sheltered by the French
government (Buchan and Mallet, 2001). Nevertheless, although Total had made some small
investments in solar in the 1980s, it entered the solar market in a significant way in 2001, but on a
smaller scale than BP and Shell (Eikeland et al., 2004), and has stayed active ever since. Total has built
its position in solar energy consistently through subsidiaries by engaging in joint ventures and
acquisitions. Total has also perceived solar PV technology as disruptive and lacked the resources and
competences to build its position in solar energy through internal development, and thus opted for
‘open innovation’ and the creation of inter-firm complementarities instead (Davis, 2006). However,
contrary to Shell and BP, Total does not have a separate renewable/alternative energy division as an
autonomous business unit in the company.
For the establishment of Total’s subsidiaries in the solar PV industry, joint ventures and
acquisitions have been Total’s consistent investment strategy. In 2001, Total entered the solar industry
with the €14m joint venture Photovoltech – Total (47.8%), GDF Suez (47.8%), IMEC (4.4%) – aimed at
R&D and production on multi-crystalline silicon solar cells, which has shown consistent growth over
the years towards revenues of €67m (48 MW) in 2008. Subsequently, in 2005 Total together with EDF

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invested in the acquisition of 50% of the shares each in Tenesol, thereby gaining shared control of the
solar joint venture. Tenesol is a vertically integrated solar company founded in 1983 with main solar
activities in design, manufacturing, installing and operating solar PV systems related to grid-connected
applications, electrification of remote sites, and electrification in developing countries. In 2004,
Tenesol had sales of €115m (25 MW), but has achieved major growth over the years towards projected
revenues in 2009 of €300m (85 MW). Furthermore, Total invested in a 25% interest in Novacis in 2007,
which conducts R&D in thin-film photovoltaic cells, and in 2008 made a €45m investment in Konarka,
a world’s leading company in organic photovoltaic technology. While Photovoltech and Tenesol focus
on manufacturing and sales of crystalline technology, which is in a mature phase of technology
development, Novacis and Konarka focus more on R&D of a thin-film-based and organic-photovoltaic-
based new generation solar cell, indicating that Total focuses both on commercializing current solar
cell technologies and developing future solar cell technologies.
The latter illustrates Total’s strategy on the development of solar PV, and is consistent with
the following quote of Total scientist Minster, who states that ‘with respect to new energy
technologies, Total believes these solutions are a long way from maturity. That means Total has to
actively pursue a host of technological options, so that when the time comes Total is ready to
industrialize the ones that do reach maturity’ (Total 2007, 15). When looking at the type of firms in
which Total has acquired shares to develop solar PV – Novacis and Konarka – these are both small-
technology driven ventures with a scientific background. Konarka is illustrative in this context, as the
company was established in 2001 by a team of scientists, and technical innovations of the venture
have led to investments of over US$150 million in private capital and US$20 million in government
research funding until 2009. This strategy of Total of acquiring small-scale business ventures for
developing future solar PV technology is also reflected in Total’s strategy for commercializing proven
solar PV technology.
Total pursues a strategy in solar commercialization of aiming at several niche markets
simultaneously through co-ownership in several small ventures by way of joint venture: Photovoltech,
which started as a spin-off of IMEC, one of the world’s leading research institutes with a strong
knowledge-base in photovoltaic research, and Tenesol, which was founded as a solar energy start-up
in 1983. For the near future, Total’s stake in Photovoltech is most ambitious in trying to achieve scale
effects from mass production, as expansion plans encompass a total production capacity of 500MW in
2012. Nevertheless, even when this production capacity will be used to its full effect, Photovoltech will
not be a major player, as the leading solar firms had already surpassed 500MW boundary in 2008
(Jäger-Waldau, 2009). Interestingly, the joint venture partners Total has co-ownership with in
managing these ventures are incumbent firms from electric utilities (GDF Suez in Photovoltech, EDF in

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 Tenesol). This cross-industry collaboration between an oil firm and electric utilities illustrates that
incumbents from both industries not only perceive their investments in solar ventures as mutually
beneficial, but are also uncertain about the prospects of the solar business and therefore prefer a form
of risk sharing.

Year BP Shell Total

Investment Divestiture Investment Divestiture Investment Divestiture
1980 Purchase of Lucas
Energy Systems
1989 Joint venture with
Tata forming Tata BP
Solar
1997 US$20m investment Establishment of Shell
in US-based solar PV Renewables
manufacturing plant
1999 US$45m investment
in remaining 50% of
Solarex and merging
into BP Solarex (later
renamed BP Solar)
2001 Joint venture with Joint venture with
Siemens and E.ON for GDF Suez and IMEC
crystalline technology. forming
Photovoltech
2002 Disinvesting thin- Acquisition of 100%
film solar cell share in the Shell-
development and Siemens-E.ON joint
manufacturing venture
2003 Start of crystalline and
thin-film solar panel
production
2004 Shell Solar and
GEOSOL establish the
world largest solar PV
power station in
Germany
2005 Joint venture with Rural electrification Acquisition of 50%
the China-based and solar divisions in of shares in
SunOasis; Asia Tenesol gaining
Establishment of BP shared control with
Alternative Energy EDF
2006 US$5m investment Joint venture with Selling crystalline
in 5-year research Saint-Gobain forming operations to Solar
project of Caltech AVENCIS World
2007 Selling Asian rural Acquisition of 25%
electrification interest in Swiss-
operations based Novacis
2008 Freezing all Acquisition of 20%
investments in share in Konarka
solar, wind and
hydrogen
2009 Selling Australian Announcement to Announcement to €70m investment
solar PV increase investments divest all wind, of Photovoltech in
production plant to in biofuels and carbon solar and hydro silicon wafers
Silex Solar Systems capture and storage technologies. fabrication plant

Table 4.1: Oil firms’ investments and divestitures in solar PV

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 4.5 The uncertain outlook of the oil industry’s commitment to solar PV: a discussion

As confirmed by previous research, the major oil firms tend to be fairly similar in the general strategy
they follow (Levy and Kolk, 2002), due to the fact that oil industry dynamics are largely determined by
geopolitical turbulence, including fluctuating oil prices, energy security issues, climate change, and
nationalization of assets. As a consequence, a constant drive for finding new oil reserves has
dominated oil firm strategies. Moreover, as the three case firms are currently all ‘supermajors’ – the
outcome of an industry which went from large-scale diversification in the 1980s, to a focus on core
business in the 1990s, and massive consolidation moving into the 2000s (Grant, 2005) – they share a
structure of the vertically integrated firm with divisions in exploration, extraction, refinery, distribution
and marketing, indicating that resources and competences are all embedded in supplying fossil fuels.
However, although the solar PV investments of these firms over the past decades have exhibited
important similarities, there are also clear differences, pointing at divergent views of the future
outlook of solar and potential oil industry involvement (see table 4.1).
Regarding technology perception of solar, Shell, BP, and Total shared the view that solar
technology is disruptive and lacks intra-firm complementarities to oil activities. Therefore, these firms
built their renewable divisions outside core business activities (Bower and Christensen, 1995), either
through separate business divisions detached from the fossil fuel supply chain (Shell Renewables and
BP Alternative Energy) or by shared ownership in multiple subsidiaries (Total). Nonetheless, isolating
solar activities from core business might also have planted the seed of eventual failure and/or
divestiture in Shell and BP. As a separate business unit, it seems difficult for solar to survive in an oil
firm when subdued to the same performance targets as highly profitable fossil fuel-oriented business
units, operating in a mature market. This problem has become larger over time, because a solar
business involves investing in a relatively R&D intensive emerging technology, while performance
targets in the oil industry have increasingly emphasized short-term shareholder returns (Grant, 2003).
Notably, diversification efforts in the 1980s also revealed problems of non-oil businesses keeping up
with profitability targets and they were cross-subsidized to keep them afloat (Davis, 2006).
Furthermore, what this implies is that Total’s solar activities are not necessarily heading for disaster as
well. Total does not have a separate renewable energy division, but invests through multiple
subsidiaries co-owned with other firms. In other words, it might be argued that Total, by allowing for
interfirm complementarities with electric utilities to evolve (Davis, 2006), has developed solar PV
activities which better stand the competition with other business units.
For commercializing solar PV, two distinct markets outside the oil business have been most
important: grid-connected solar systems and rural electrification. While both are niche markets in

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relation to oil markets, they have become mainstream markets within the solar business. To enter
these markets and access specific solar knowledge, all three firms relied on financial investment power,
using joint venture agreements and acquisitions. However, there are clear differences in the type of
firms they acquired or collaborate with, which is related to the fact that there are competing ways to
achieve a low-cost, high-efficiency solar cell (Goetzberger et al., 2002; Gross et al., 2003). BP has
predominantly focused on acquiring established solar companies, because it made the choice to
achieve scale economies based on solar cells using crystalline technology and abandoned its
commitment to further develop thin-film technology. At first Shell was following a similar trajectory to
achieve scale in crystalline technology, but sold all crystalline activities in 2006 and decided focussing
on joint venture agreements with the incumbent Saint-Gobain to further develop thin-film technology.
Finally, Total has preferred to keep betting on two horses – crystalline and thin-film – inter alia by
setting up joint ventures with large electric utilities and acquiring shares in small technology-driven
ventures with specialized knowledge in future generation of solar cells, thus applying open innovation
logic (Chesbrough, 2003). However, regardless of whether they have chosen to develop the next
generation solar cell with superior performance before investing in commercialization (thin-film
technology), or commercialize what was most viable for mainstream markets but limited possibilities
for future performance enhancement (crystalline technology), over the past five years oil firms have
been outpaced by specialized solar cell producers such as Q-Cells, First Solar, Suntech and Sharp
(REN21, 2009). While in 2002 BP and Shell could still be leaders in the solar market with revenues of
around 73 MW, the solar industry has expanded at an unprecedented pace; in 2008, for example, sales
of European leader Q-cells amounted to 570 MW, although this firm is now challenged by new entrants
from China (Jäger-Waldau, 2009).

4.6 Conclusion and policy implications

This paper has provided a comparative analysis of oil firms’ strategies regarding solar PV technology
investments. Our findings show that oil incumbents have experienced difficulties in integrating solar
technology in their supply chain and therefore established fairly independent business units, serving
niche markets outside mainstream markets for oil. While, on the face of it, it was striking that Shell
and BP decided on divestitures of solar at a moment when the technology was on a path towards grid
parity, these decisions coincided with a high level of firm entry which led to higher competition in the
solar industry. Based on the most recent developments in solar investments, it is nevertheless
uncertain whether all oil firms will abandon solar completely, as it depends to what extent they are
able to generate profits with these activities.

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Furthermore, the findings suggest that the competitive dynamics of oil firms are to a large extent
determined outside the market for renewables. However, the competitive strain and increased
turbulence in the oil industry have led to erratic investment behaviour of oil firms, as various
geopolitical factors and short-term performance targets govern the industry. As a consequence,
renewable energy projects in which incumbents are engaged might be cancelled for reasons which
have nothing to do with the market viability of renewable energy. Nevertheless, due to the economic
importance of the industry, oil firms tend to have quite some leverage in advising high-level policy
makers on market development for renewables (Backer and Clark, 2008; Jacobsson and Bergek, 2004).
This raises the question to what extent it is desirable that policy makers pay lip service to and create
incentives for these firms in designing renewable energy policy instruments. An issue for further
investigation would thus be a larger study on the influence of oil firms on the emergence and maturing
of the renewables industry over time.
In addition, it would also be of interest to study other incumbents with regard to their role in
the solar PV industry. For example, while large firms from electronics have already played a role in the
development of the solar PV industry, utilities are starting to become more important as well. Firms
from these industries might have fewer difficulties creating intrafirm complementarities, but an
interesting direction for further inquiry is whether and/or how they are able to create these or face
problems similar to oil firms. Finally, while oil industry dynamics affected firm entry in the 1980s and
renewed interest in the solar market in the 1990s, currently it seems that solar industry dynamics in
terms of increased competition from new entrants affect further expansion plans and/or exit
strategies. However, how these solar industry dynamics unfold and which role new entrants play in
the emergence of the solar PV industry would be another area for further research.
To conclude, then, the recent investments of Shell and BP in unconventional oil reserves such
as tar sands point at a ‘recarbonization’ trend in the industry, which was stimulated by the record-high
oil prices just prior to the global financial crisis. The oil firms seemingly stopped worrying about their
public profile on climate change (Levy, 2009). What might have caused this change is the fact that in
dealing with climate change, investments in renewables are no longer the main option for oil firms.
Other mitigation measures including energy efficiency, emissions trading, biofuels and CCS have
become more widespread (Pinkse and Kolk, 2009), which enable oil firms to stay closer to their oil
activities. Regrettably, policy makers might have incentivized this behaviour, because they have
focused on the implementation of climate policy instruments to achieve near-term carbon targets
(Sandén and Azar, 2005). Whereas emissions trading, due to relatively low allowance prices, has not
yet provided an incentive strong enough to induce radical mitigation measures, it is particularly
governments subsidizing CCS, which might have stimulated oil firms not to switch away from fossil

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fuels. Findings of this study therefore corroborate the call made earlier that policymakers need to put
in place technology-specific instruments to stimulate market entry of more disruptive renewable
energy technologies (Sandén and Azar, 2005).

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 CHAPTER 5

IN SEARCH OF VIABLE BUSINESS MODELS FOR DEVELOPMENT: SUSTAINABLE

ENERGY IN DEVELOPING COUNTRIES6

5.1 Introduction

In the past decade, international interest in the role of business in furthering development has
increased, and from a growing number of perspectives. Be it the policy debate in the framework of the
Millennium Development Goals or the literature on bottom of the pyramid, subsistence markets or
partnerships, involvement of the private sector has been emphasised. As such, attention for economic,
entrepreneurial activity in developing countries, including the impact of foreign investment on
development, is not new at all (for overviews see Fortanier and Kolk, 2007; Meyer, 2004). What has
changed in more recent years is that multinationals in particular are increasingly called upon to help
alleviate poverty (Kolk et al., 2006), and are thus seen as ‘part of the solution’ – no longer as only ‘part
of the problem’. In addition, they are not just asked to contribute to economic development ‘per se’,
but also to address social and environmental issues. In this way, business is expected to take on roles
and responsibilities that were previously regarded as belonging to the domain of government, and/or
of non-governmental organizations (NGOs).
Especially multinationals have become very active in a variety of fields, ranging from mere
philanthropy to more strategic corporate social responsibility efforts, sometimes even linked to their
core business, as can be seen in some business-NGO partnerships or supply-chain activities (Kolk et al.,
2008). Since the early 2000s, attention has even shifted to the possibility to make a profit out of
poverty-oriented approaches, as put forward by the Bottom/Base of the Pyramid (BOP) thesis as
initially launched by Prahalad and Hart in 1999. While there is no evidence for a systematic ‘Fortune
at the BOP’ for multinationals beyond a limited number of high-profile, oft-cited cases – as the poorest
of the poor do not have sufficient purchasing power to generate huge market opportunities (e.g.
Garrette and Karnani, 2010; Ireland, 2008; Kolk et al., 2010; Pitta et al., 2008) – the BOP idea has put
poverty strongly on the international business agenda. Interestingly, the recent emergence of BOP 2.0
(Simanis and Hart, 2008), in which the poor stand much more central, as co-creators of BOP initiatives,
has meant a certain convergence with the subsistence market(place)s approach (Viswanathan et al.,
2009; Viswanathan and Sridharan, 2009).

6
This chapter was published in Corporate Governance: Int. Journal of Business in Society, 2012, 12(4), 551-567,
with Ans Kolk as co-author (for more details, see co-author statements included elsewhere in this dissertation).

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In line with that bottom-up, micro-level perspective, the overall debate has moved towards the role of
smaller, local companies, and to a broader interest in reconciling the ‘social good’ with economic
objectives, i.e. beyond corporate social responsibility or philanthropy only, and in such a way that it
can reach sufficient scale to address the urgent and huge unmet needs of the poor. However, although
the crucial role of business, and of business-based approaches, in development is thus frequently
underlined by academics and practitioners, we lack insight into the ‘whether and how’ of viable
business models, in environmental, social as well as economic terms. Despite generic calls at the macro
level and statements that business can help to alleviate poverty, how this might work from a business
perspective that considers firm-specific factors, is not so clear. This article aims to contribute by
analysing private-sector involvement in development, taking the case of sustainable energy in
developing countries. This is highly relevant as energy is often seen as a crucial lever for development,
as the next section will explain in more detail. We also examine the ‘state of the art’ on sustainable
energy and business involvement, and subsequently present our own research on illustrative cases
from local companies involved in renewable rural electrification. This includes a discussion of
implications, viewed from the broader perspective of business models for development as well.

5.2 The crucial role of energy in development

Energy is important for social and economic development, and crucial for individuals and communities
in developing countries to meet their basic needs. The essential role of access to clean and reliable
sources of energy for realizing sustainable development has been widely recognized, as reflected in
the UN’s decision to label 2012 as the international year of ‘Sustainable Energy for All’. It is estimated
that almost one fifth of the world population does not have access to electricity, and this situation is
expected to still hold for 1.2 billion people in 2030 (IEA, 2010). Energy is directly linked to increased
income and productivity, and indirectly to better health, education, quality of life, and human
development in general. Access to energy can act as an incubator of economic activity and have an
important impact on long-term poverty reduction, as it can increase livelihood options by allowing
households to engage in a more diverse range of income-generating activities and make pre-existing
activities more efficient (Biswas et al., 2001; Davis, 1998; Sagar, 2005; Sharma, 2006). Besides domestic
use, electricity can improve healthcare: it enables the possibility of providing clean water and lighting,
of conserving medicines, vaccines, and blood storage, as well as access to usage of modern medical
equipment. In terms of education, learning conditions could be dramatically improved as electricity
means lighting during the evening, and facilitates access to internet, and thus to knowledge and
information beyond the local community.

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Considering that approximately 80% of the people in developing countries who lack access to
electricity live in rural areas beyond the reach of the electricity grid (ARE, 2008), rural electrification is
a crucial issue in access to energy. The conventional approach to electrification has been to extend the
electricity grid powered by centralized fossil fuel-based power plants operated by the national utility.
This is based on the model adopted in developed countries, where national governments had
traditionally created such systems. The reality in many developing countries, however, is very
different, because it is financially, technologically and organizationally almost impossible to extend the
central grid to all remote and rural parts of the country. Grid-connected electricity is often only
available in urban areas, because of high costs for connection and subsequent power transmission
losses resulting from the large distances that need to be bridged (ARE, 2008). This thus calls for off-
grid, decentralized solutions for energy provision, either based on existing technologies such as diesel
generators or emerging renewable energy technologies (RETs), which provide access to energy beyond
the public electricity grid. A diverse range of such RETs that are relevant for developing countries has
emerged over the years (see Box 5.1). RETs in fact relate to two of the three (interlinked) objectives
adopted in the framework of Sustainable Energy for All: i.e. to “ensure universal access to modern
energy services” and “double the share of renewable energy in the global energy mix”.7

A broad range of RET-based applications for decentralized off-grid electrification including solar, wind, hydro and
hybrid systems has become available in recent years. For the main applications in domestic use, such as lighting
and usage of electrical appliances (e.g. television, radio, mobile phones), REN21 (2010) states that the main
options include the following: solar home systems (SHS) applied to individual homes, schools or hospitals; village-
scale mini-grids powered by solar, wind or hybrid technologies; small-scale biomass gasifiers with gas engines;
and hydropower installations on a pico-scale, micro-scale or small-scale. In addition to utilizing solar energy
through SHS, ARE (2008) also mentions two options for solar photovoltaic (PV) which create high flexibility in
usage as they are easy to move and share: small solar PV applications, consisting of solar PV modules attached
to a specific application, and energy boxes, consisting of a portable loading station with power outlets for creating
a connection to specific applications.

When considering appropriate RETs for electrification in developing countries, it is important to define
dimensions on which the choice for a specific energy system can be made, as a broad spectrum of stand-alone
and mini-grid based RET applications has emerged in recent years. Selecting the best technological configuration
for rural electrification from the diverse range of available options mentioned above should be done on a case-
to-case basis, as the specific conditions in a geographical area determine the most effective technology solution
(ARE, 2008). O’Brien et al. (2007) identify several general characteristics for selecting the appropriate RET-based
solution for electrification, including the efficiency, adaptability, reparability, and ease of use of the technology,
which are rather context-specific and dependent on the needs of the end-consumer. Reliability and affordability
are also often mentioned as crucial aspects (e.g. Umree and Harris, 2006).

Box 5.1: Renewable energy technologies for developing countries

7
See Energy for All: http://www.sustainableenergyforall.org/about-us.

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While decentralized RET-based electrification offers clear benefits from an environmental and social
perspective (e.g. by avoiding emissions from fossil fuels and negative health effects from using
traditional biomass fuels such as charcoal and wood for cooking and heating inside), achieving
economic viability has been problematic. In addition to challenges related to financing and upscaling
beyond pilot projects, Mohiuddin (2006) mentions that RETs are not yet widely adopted in developing
countries due to a lack of available infrastructure for RETs, which creates high initial capital costs for
RET-based electrification projects, and limits the possibilities for a wider, sustained market
development. The main challenge is to achieve broad access to affordable, modern energy services in
countries that lack them, and to find a mix of energy sources, technologies, policies and behaviours
that avoid the negative environmental impact related to fossil fuels (Spalding-Fecher, 2005; Spalding-
Fecher et al., 2005).
However, as RETs involve local solutions, frequently for remote communities only, national
governments in developing countries might often not (be able to) play an active role in their provision
at affordable price levels for poor people. This is one of the reasons that many other (non-
)governmental organizations have become engaged in stimulating investments in off-grid solutions in
those parts of the world that would be neglected otherwise. Through different kinds of partnerships
and financing schemes, such organizations have often tried to attract the interest of the private sector
while keeping costs for electricity users low. However, creating the right kind of incentives to step up
investments in off-grid energy solutions and designing long-term viable business models to sustain
rural electrification has been very difficult for for-profit companies. Academic research including work
by Chesbrough et al. (2006) has also shown that many technologies developed with the intention to
be implemented in developing countries did not achieve commercial viability, or remained limited to
charitable distribution programmes by donor organizations.
In the next section, we pay attention to financing and delivery models in RET-based
electrification as they have come to the fore in the literature, and compare the options that have
emerged. We subsequently present our own research on some illustrative cases from local companies
involved in RET-based electrification in developing countries, which represent a market-based bottom-
up approach, and characterise the issues at play. Given that the importance of private sector
involvement to establish energy markets in developing countries for long-term sustainability is
increasingly recognised, the viability of the underlying business models of these initiatives is
considered. We also discuss the implications, viewed from the broader perspective of business models,
for research and practice in sustainable development.

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 5.3 Financing and delivery models for renewable energy technologies

While the importance of access to energy for sustainable development in developing countries is
widely recognized, the issue has not yet received mainstream attention in the academic business and
management literature. Publications have included a range of case studies, covering sub-Saharan
Africa (e.g. Jacobson, 2007; Nygaard, 2009; Wamukonya and Davis, 2001), South-East Asia (e.g. Byrne
et al., 1998; Ling et al., 2002; Miller and Hope, 1999; Nguyen, 2007; Umree and Harries, 2006), Oceania
(e.g. Umree et al., 2008; 2009), and the Indian subcontinent (e.g. Biswas et al., 2001; Chakrabarti and
Chakrabarti, 2002; Rao et al., 2009; Sharma, 2007). However, they have focused on concrete
(technical) issues, usually taking a more macro-economic and/or policy-oriented approach, including
the identification of success factors and the implications for (donor) investment policies in terms of
delivery and financing mechanisms. Research that examines private-sector involvement from a
business perspective, including the factors at the level of the firm that influence the viability of business
models for RET-based electrification, has been lacking.
If we consider the existing macro/policy studies, they have predominantly consisted of two
types: empirical papers based on case studies on rural electrification in specific (sets of) developing
countries using RET as an energy source, and policy-oriented papers looking at the existing policies and
financing mechanisms for stimulating investments in RETs and energy-efficiency technologies.
Particularly publications in the latter category, which sometimes contain insights on emerging delivery
models on how sustainable energy projects are developed and implemented, are potentially
interesting for the purpose of this article; that also applies to financing schemes that address funding
mechanisms within a project. The models and schemes identified by different authors and multi-
stakeholder organizations such as the Alliance for Rural Electrification (ARE) and Renewable Energy
Policy Network for the 21st Century (REN21) overlap in multiple ways, and share important
characteristics that we will briefly summarize next.
Figure 5.1 positions the various delivery and financing models as included in four main recent
studies, based on two basic dimensions that come to the fore in each decentralized off-grid solution
to access to energy in developing countries: the extent to which subsidies are included in the model in
question, ranging from fully subsidized to non-subsidized, on the one hand; and the nature of the
actors involved, public or private, on the other hand. While this overview is indicative only (with
sometimes dotted lines if there is a range and not just one point), it gives insight into the different
options distinguished, and shows their variety, as well as similarities. We will not discuss all four studies
in detail, but focus on evolution of thinking over the years, in which the desirability of models carried

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out by private actors without subsidies is the most recent phenomenon in a field that has traditionally
relied on donation-based, donor-driven projects.

Figure 5.1: Indicative positioning of some off-grid delivery and financing models

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Based on his study on rural electrification using solar technology in Sub-Saharan Africa, Nygaard (2009)
identifies delivery models that cover the whole range. At one extreme, there is the traditional
philanthropic model (#1 in Figure 5.1), a ‘donor-driven’ approach in which developed countries provide
funding to developing countries on a project basis, and government organizations are fully in charge
of all aspects related to the RET-based electrification system. This does not provide a basis for
establishing a viable market, and large organizations such as the World Bank are trying to move beyond
this model (e.g. Martinot, 2001). The other end of the spectrum consists of a commercially-led delivery
model (#2 in Figure 5.1) based on cash sales, with zero subsidies. This resembles a classic market-based
model in which private organizations and/or individuals are end-users of the electricity, own and
finance the system and are fully responsible for installation and maintenance – roles all fulfilled by a
government organization in the previous model. In between these two, we find a multi-stakeholder
model (#3) in which private entities are still end-user of the electricity and have ownership over the
installation, but financing in is provided by a donor, financing institution or dealer through a low to
medium-size investment in the overall project. This approach is broad by definition and can involve a
variety of different actors, and is relevant as a possible alternative to the two other models mentioned
earlier. Based on research in Brazil, Cambodia and China, Zerriffi (2011) suggests comparable models,
although his most ‘extreme’ private model (#13 in Figure 5.1) is one that focuses on decentralization
which can cover both established (fossil-based) mini-grids and solar systems. While highly interesting
for this context, Zerriffi (2011, 144) notes that this has “not been around long enough to have
significant impact and allow evaluation of sustainability and replicability”.
The literature also contains various financing models, as discussed most specifically by Umree
and Harris (2006) and ARE (2008), and included in Figure 5.1 as well. This again ranges from
donations/subsidies on the one hand (#8 and #19) and more or less fully private funding, such as those
based on cash sales (#7), on the other. The latter variant only works for households with sufficient
purchasing power, which excludes the (poorest of the) poor (Jacobson, 2007). In this context, micro-
financing is sometimes mentioned as a possibility (#18). While this instrument in general has not been
without criticism, a debate beyond the scope of this article8, several authors adjusted it to the energy
context to support both RET supply and demand (Mohiuddin, 2006; O’Brien et al., 2007; Rao et al.,
2009). Rao et al. (2009) most specifically proposed an ‘energy-microfinance framework’ to pool energy
expertise and financial management skills. Figure 5.1 also contains fee-for-service models (#4, #5 and

8
For recent insights into the broader micro-finance debate that often rely on empirical results from randomized
controlled field experiments in the framework of MIT’s Poverty Action Lab, see Banerjee and Duflo (2010), Chu
(2007) and Karlan and Murdoch (2010). For several short practice-oriented articles on micro-finance, see e.g.
Stanford Social Innovation Review, particularly in the 2007 and 2008 volumes.

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#6), in which a national utility or energy service company owns, finances and maintains the installation,
and is responsible for maintenance while periodically charging a fee to households based on usage. An
affordability payment scheme or specific subsidy can be part of such an arrangement. ARE (2008)
distinguishes several models in which subsidies are integrated, such as a regulated purchase tariff
(#14), with subsidies that complement tariffs paid by consumers, or fund electricity producers either
for the number of connections established (#15) or via power purchase agreements (#17) that
guarantee producers a specific price and a minimum purchase to stimulate investments.
As shown in Figure 5.1, the number of market-based models that operate without subsidies is
fairly limited, despite persistent calls for private investment for more than a decade, particularly by
international development organizations such as the World Bank. This has been accompanied by the
identification of a range of key demand and supply factors to be addressed by policies for
infrastructure, investments, institutions, entrepreneurial and consumer behaviour (Martinot, 2001;
Miller and Hope, 2000, World Bank, 2008a, 2008b). However, as noted by Mohiuddin (2006, 122), “the
majority of support for RETs in developing countries still comes from local and state governments or
from foreign donors, which is not sustainable because government funds fluctuate as priorities shift
and as national and regional crises spring up from time to time and aid flows from foreign donors can
ebb at times”. A 2012 UN document on Sustainable Energy for All urges all stakeholders to take steps,
and suggests many possibilities for action. It mentions, “by way of illustration” that “private sector
stakeholders could commit to”, inter alia, “develop and deploy business models that deliver and build
value from sustainable energy solutions” (UN 2012, 14).
Interesting is the unequivocal statement in that same “Framework for Action” (UN 2012, 19)
that “In many off-grid situations, small-scale sustainable energy solutions for productive uses of energy
are not only affordable under the right business models, but cheaper than current sources of energy.
This creates opportunities for local business development consistent with all the objectives of
Sustainable Energy for All. There are numerous recent success stories involving innovation in energy
access by small-scale businesses and civil society organizations. Replicating and scaling up successful
community-based delivery models could have a significant impact, both as stand-alone efforts and as
part of national efforts described in the previous example”. These national activities comprise joint
activities funded by the private, public and non-profit sectors. The emphasis on collaboration also
comes to the fore in the quotation “Private sector stakeholders can make a significant contribution
toward achieving the Sustainable Energy for All objectives, both on their own and – more importantly
– through partnerships” (UN 2012, 14).
It is not clear whether the terms ‘affordability’, ‘cheaper’ and ‘success stories’, as cited above,
refer only to reaching poor populations or also to the economic viability for business. The request to

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companies, cited above, to make a commitment to develop business models suggests that the focus is
more on access to energy and the impact for developing countries. While understandable, this still
leaves open the question how and to what extent RET business models can become viable and thus
sustainable in both economic and social/environmental terms. To shed some light on these aspects,
we examined four illustrative cases of bottom-up business initiatives of local companies. Below first
the methodology and approach will be explained, followed by a presentation of findings, embedded
in a broader discussion of business models.

5.4 Methodology

Sample and method

We analysed four local companies that have developed innovative business models for providing RET-
based off-grid energy solutions to households and villages living beyond the reach of the electricity
grid. These are illustrative cases originating from four countries in Asia: Kamworks (Cambodia),
Sunlabob (Laos), Husk Power Systems (India) and Grameen Shakti (Bangladesh). We selected these
companies after a web-based search for examples of entrepreneurial, local activity in RET-based rural
electrification in developing countries as they show different aspects and technologies used in
developing countries, and positioned themselves as market-oriented organizations. Other examples
could have been taken, for example in Africa, although the number of for-profit ventures seems to be
smaller in reality than it looks at first sight as many appear private but turn out to be non-governmental
or hybrid at best. The number of local companies active in RETs appears to be rather limited, at least
when doing a selection via internet sources.
Primary and secondary data was collected from public sources, particularly websites and
reports, supplemented with nine semi-structured interviews with experts in the field, held by the
second author in the first half of 2011, to gain insight into emerging RET business models in developing
countries. Interviewees were three directors of small local companies (including two of the Asian
companies included in this study and one active in Africa), four senior staff members of international
governmental and non-governmental (development) organizations, and two other experts in the field
of energy in developing countries (see appendix A for an overview). Based on insights from the
literature, questions focused on main challenges of RETs for access to energy, the role of the private
sector and the emergence of market-based business models, and the (possible) role of collaboration
with partners from the public, private and/or non-profit sectors in this regard.
Of the four companies, Grameen Shakti is somewhat exceptional in view of its explicit
positioning as a not-for-profit company. Furthermore, it is part of the broader Grameen family of
organizations which contains an umbrella of non-profit and for-profit ventures, all related to the initial

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Grameen Bank set up to provide micro-credit. At the same time, it is a relatively large renewable
energy company that has focused on offering RETs in rural areas for many years already and therefore
interesting to consider as well. In addition, like the other three (Husk Power Systems, Kamworks and
Sunlabob), it operates according to a market-oriented approach, and can thus be found in the lower
half of Figure 5.1 as presented in the previous section. Issues related to levels of subsidization will be
discussed in the next section when we explore their respective business models, in the context of the
literature on this topic.

Business model perspectives

In the past few years, business models have received growing attention in the management literature9,
but the number of articles that reckons with the situation in developing countries has been very
limited, except for a few that focus on business-NGO collaboration in this context (Chesbrough et al.,
2006; Dahan et al., 2010) or on opportunities for (Western) multinationals in emerging markets (e.g.
Eyring et al., 2011). Yunus et al. (2010) describe first-hand experiences with a few Grameen companies
from a ‘social business model’ perspective, but this is less linked to the generic literature on the topic
and several details (for example on funding and profitability) are far from clear. We therefore searched
for additional, older publications as well for frameworks that might be helpful to discuss the type of
companies, issues and locations covered in this study, which also included Morris et al. (2005) and
Shafer et al. (2005).
Eyring et al. (2011) turned out to be less applicable in view of its starting point of competition
on either differentiation or price. Given the early stage of the market for RETs with commercial viability
still being explored and companies emerging only recently, the model appears not so relevant for the
purpose. Its components (customer value proposition, key resources and processes, and profit/cost
structure) bear resemblance to other models though, such as Shafer et al. (2005). The framework of
Shafer et al. (2005, 202) consists of strategic choices, value creation, value network and value capture,
with several subcategories, following from their definition of a business model as “a representation of
a firm’s underlying core logic and strategic choices for creating and capturing value within a value
network”. However, the elements are too specific given the nascent state of the market and the
companies, the limited information available for the local companies and their lack of formalization
compared to large (Western) companies.
The most appropriate model for the purpose of this article appears to be Morris et al.’s (2005)
more open set of questions at the foundation level as summarized in Table 5.1, coupled with a

9
See a special issue with 19 articles on business models in Long Range Planning, Vol. 43 (2010), which included
an introductory reflective piece by Baden-Fuller and Morgan (2010); and Zott et al.’s overview as published in
the 2011 annual review issue of Journal of Management.

112
proprietary level that considers the unique innovation of the specific venture. We will discuss these
aspects in more detail below, using the findings of our research on the four companies.

Question Some sub-components

How will the firm create value? Peculiarities of the offering

For whom will the firm create Market factors such as business-to-business or business-to-consumer,
value? local-international, value-chain position of customer, market segments
What is the firm’s internal Internal capability factors including production, sales, technology,
source of competitive finance, supply chain management, leveraging of networks and
advantage? resources
How will the firm position itself Competitive strategy factors such as operational excellence,
in the marketplace? product/service quality, innovation/cost leadership, customer
relationship/experience
How will the firm make Economic factors such as pricing and revenue sources, operating
money? leverage, volumes and margins
What are the entrepreneur’s Type of investment model (e.g. subsistence, income, growth,
time, scope, and size speculation)
ambitions?
Table 5.1: Six questions that underlie a business model, based on Morris et al. (2005, 729-730)

5.5 Emergent RET business models

Table 5.2 contains some key characteristics of Grameen Shakti (GS), Husk Power Systems (HPS),
Kamworks and Sunlabob, particularly location, main products/services and customers, relationships,
and key achievements as presented by the companies themselves and as honoured by external parties
via awards. It also includes references to the most applicable delivery/financing models as discussed
earlier in this article (see Figure 5.1). The Table gives fairly detailed information regarding the activities
of the companies, also in terms of technologies (cf. Box 5.1) and the specific organizations with which
they partner. In our discussion below we will not pay much attention to the technicalities but rather
aim to generate insight into broader implications for sustainable energy and development considering
the (im)possibilities of market-based, private-sector involvement. Components of Table 5.1 will be
used to characterize the (unique) features of the companies, as well as the sector more generally. The
first subsection addresses the first four questions of Table 5.1 as well as the proprietary level, followed
by the last two questions to explore the economic viability and (future) investment models.

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 Grameen Shakti (GS) Husk Power Systems (HSP) Kamworks Sunlabob
Year of creation 1996 2008 2006 2000
Country of origin Bangladesh India Cambodia Laos
Countries/(sub) Main market is Bangladesh Main market is India’s Bihar state Main market is Cambodia Main market is Laos, also international
regions of activities on project basis in Thailand,
activity Cambodia, Uganda, Sierra Leone,
Mozambique, Liberia, and Afghanistan
(some starting from 2012 onwards)
Main products Solar home systems, improved Biomass gasifier running on rice Grid-connected and off-grid solar Grid-connected solar systems, village
/technologies cooking stoves , biogas plants. All husk, distributed by village grid systems, water systems (pump), grid systems (technologies: hybrid,
(cf. Box 5.1) include a programme incorporating solar home systems (sizes 20W to solar, hydro, wind), solar home systems
credit schemes and microfinance 320W), Moonlight solar lantern, (sizes 20W to 150W), solar lanterns,
options solar-powered cooling water systems (pump, purification,
treatment, heater), solar-powered
cooling
Main services Installation and maintenance , Installation and maintenance, Installation and maintenance, Installation and maintenance,
awareness raising and demonstration, training programmes through Husk awareness raising and consultancy on electrification and
training programmes. Entrepreneur Power University demonstration, rental scheme on energy efficiency, project management,
development through Grameen solar lantern training programmes, awareness raising
Technology Centres, credit schemes and demonstration, rental schemes on
energy systems and solar lanterns
Types of b-to-c, predominantly low-income b-to-c, predominantly low-income B-to-b and b-to-c, broad customer B-to-b and b-to-c, broad customer base
customers customers in rural Bangladesh customers in rural India base from organizations/business to from organizations/business to middle-
middle- and low-income customers and low-income customers in
in rural Cambodia rural/urban Laos
Key (1) “Grameen Shakti has developed (1) “The company designs, installs (1) “Kamworks tries to introduce the (1) “Sunlabob operates as a profitable,
achievements / one of the most successful market and operates biomass-based power so-called energy ladder: for the full-service renewable energy provider,
statements based programmes with a social plants. Each plant uses proprietary lowest income household we have providing commercially-viable energy
objective for popularizing Solar Home gasification technology to convert the Moonlight (a solar-powered services”
Systems (SHSs) including other abundant agricultural residue lantern), and for the medium and
(procured from local farmers) into higher income households we have

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 Grameen Shakti (GS) Husk Power Systems (HSP) Kamworks Sunlabob
renewable energy technologies to electricity, which is then distributed a SHS systems in 20 watt, 40 watt (2) “Sunlabob believes that responsible,
millions of rural villagers” to rural households and micro- and 80 watt” long-term oriented entrepreneurship is
enterprises through a micro-grid the driving force for sustainable
(2) Since its inception, Grameen system - providing a better quality, (2) “In the first place Kamworks sells economic development and for
Shakti achieved a total of 815,528 of cheaper way to meet their need for and installs solar electricity systems providing managerial, technical, and
installed Solar Home Systems, a total energy” for professional end-users that have financial resources needed to meet
of 463,842 distributed ICS, and a total a need for electricity in the rural social and environmental challenges”
of 22.096 installed Biogas Plants. It (2) “Consumers pre-pay a fixed areas (high-end). In the second
has 1217 branch offices throughout monthly fee ranging from US$2 to place, the company imports, (3) “Sunlabob installed more than
all 64 districts in Bangladesh, with a US$2.50 to light up two fluorescent develops, produces and sells 10,000 systems in over 500 villages and
total of 1445 offices including regional lamps and one mobile charging products based on solar electricity locations in Laos”
and divisional offices, with a total of station. This offers consumers for the consumer market (low end)”
around 5 million beneficiaries (figures savings of at least 30% over (4) “Sunlabob has successfully initiated
for May 2012). competing kerosene and diesel (3) ”International experience shows a rental service for energy systems and
energy sources” that the biggest problems with a Solar Lantern Rental System that
(3) “GS used its Grameen Bank's battery operated solar systems are allows households and villages to afford
experience to evolve a financial (3) ”Since 2008, HPS has successfully usually related to the quality of the electricity”
package based of installment installed more than 80 plants in product and lack of a functioning
payment which reduced costs and Bihar, providing electricity to over local service network”.
helped it reach economy of scale” 200,000 people across 300 villages”
Awards Awards include: SolarWorld Einstein Awards include: Ashden Award for Awards include: Clean Energy Awards include: Development
Award (2010), International Sustainable Energy (2011), Africa Marketplace Award by USAID, ADB, Marketplace Award by the World Bank
Microfinance Award (2009), Ashden Enterprise Challenge Fund Award and RWI (2010), Development (2005), Ashden Award for Sustainable
Outstanding Achievement Award (2011), and Real Heroes Award – Marketplace Award by the World Energy (2007), Energy Globe Award –
(2008), Energy Globe Award (2008), Social Welfare for founder Gynesh Bank (2006) Laos (2007 / 2008 / 2009), Cleantech
and the Ashden Award (2006) Pandey National Competition in Singapore
Award (2010), and Best Practice in CSR
Award (2012)
Size 10.341 employees (7 executive 350 employees (6 executive Not specified (estimated 15-25 Around 70 employees
management) management) employees)

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 Grameen Shakti (GS) Husk Power Systems (HSP) Kamworks Sunlabob
Subsidies States to get ‘no direct subsidies’, Investments from a number of From international (development ) From international (development)
obtained focus on micro-credit financing in organizations including international organizations for supplying and organizations for supplying and
collaboration with Grameen Bank (no organizations, foundations, venture installing RET-based energy installing RET-based energy solutions
mention of subsidies by this capital firms, and non-profit venture solutions on project-basis, which on project-basis, which includes the
company) funds includes the World Bank and Energy World Bank, Asian Development Bank,
& Environmental Partnership and United Nations/UNIDO
Mekong
Partnerships Not specified Investors include Shell Foundation, Includes private sector partners for Includes private sector partners for
within private Draper Fisher Jurvetson (DFJ), LGT supply of products (organizations supply of products (21 organizations),
sector Venture Philanthropy, Bamboo not specified) projects & implementation (11
Finance (Oasis Capital), and Cisco organizations), and business strategy
development (3 organizations)
Partnerships Not specified Includes The Ministry of New and Includes Agentschap NL Includes United Nations/UNESCAP,
with Renewable Energy (MNRE), Govt. of (Netherlands) and GIZ (Germany) World Bank/IFC, GIZ (Germany), SES
governmental India and World Bank/IFC (Germany), Lao Institute for Renewable
actors Energy (LIRE)

Partnerships Not specified Includes the Acumen Fund Includes Energy & Environmental Includes The Asia Foundation,
with NGOs Partnership (EEP) Mekong, PicoSol Engineers Without Borders Australia, FK
Cambodia, CICM/Crédit Mutuel Norway, Cambodia Rural Development
Kampuchea, the Delft University of Team, World Volunteer
Technology (Netherlands), the
University Twente (Netherlands),
and Kofi Annan Business School
(Netherlands)
Most applicable #9, #18 #2, #7, #13 #2, #7, #13 #2, #5, #6, #13
model(s) ( Figure
5.1)

Table 5.2: Some characteristics of the four companies, based on company websites, reports, and interviews

116
Offerings, markets, positioning and capabilities
Overall, local companies in off-grid rural electrification offer a portfolio of energy ‘solutions’, generally
consisting of different renewable-energy technologies to various customers: business-to-business
and/or business-to-consumer, in a range from individual-level to village-level products and services.
End-consumers vary in their ability to pay as many are poor which means that there is often financial
support via donor organizations, in which case these organizations can be argued to resemble, in a
sense, a ‘business’ customer (as end-consumers are beneficiaries). Business-to-business activities are
commercial if they cater to the needs of local companies. It is possible to buy RET-products as a single
item, but also in combination with other products and/or services such as installation, maintenance,
training, project management, and sometimes financing and rental schemes. The local companies
usually do not manufacture RET-products but focus on value-added reselling of standardized solutions
that are customized and locally-adapted where needed so as to ensure a reliable electricity supply.
This is a challenge as it requires a network of maintenance and repair as well as stable quality products
all delivered in distant rural areas. RET-applications are currently still niche markets, but with a
potential to become much larger in view of the large number of people in developing countries
without access to energy.
Within this overall sector framework, the four local companies also exhibit some differences
in terms of size, product-service solutions and customers, as Table 5.2 shows. All four are locally-
focused in their respective home countries; only Sunlabob has started some activities on a project
basis in other countries as an outflow of their international recognition and contacts. Husk Power
Systems is unique for its cost-effective electricity generation through a biomass gasifier running on
discarded rice husk, abundantly available in rural India, which is subsequently distributed through a
village grid. This is a specific business model and technology developed by HPS aligned to local
conditions. The other three companies have a broader RET-portfolio, with Grameen Shakti standing
out for its much larger size. Peculiar to GS is that its RET-based solutions come with a micro-financing
‘soft credit’ scheme developed in collaboration with the Grameen Bank. The company is locally
embedded in Bangladesh through more than 1200 branch offices, which provides a clear
infrastructure.
Although based in two different countries, Kamworks and Sunlabob are rather similar in many
respects, considering their main products/services, types of consumers and the fact that they are run
by an entrepreneur strongly embedded in the local/regional context. One dissimilarity is Kamworks’
primary orientation at solar energy, which means that it is more focused in the type of renewable
energy than Sunlabob. Different from GS and HPS, which predominantly cater to low-income (end)
consumers only, Kamworks and Sunlabob serve a broader mix of customers, including local business

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on a fully commercial basis as well as end-consumers, villages and/or individuals, who pay themselves
or are (partly) funded via international donor projects. This relates directly to the economic factors
and types of investment models of the local companies.

Economic viability and (future) models

Although it proved impossible to obtain hard revenue and profit data from the companies, our
research confirms that building a viable business model in this sector in the present situation is rather
difficult. While circumstances differ and so do the companies we studied, subsistence appears to be
the key current focus, even though the aim is to move towards a stable income and subsequently
growth model. Particularly Husk Power Systems has an innovative and relatively simple approach, but
this requires the abundant availability of husk material. Even in such unique conditions, however,
financing for pilots and start-up costs are required. This is all the more the case for other locations,
where only other RETs can be used and where rural electrification is not viable on its own as upfront
costs for installation, infrastructure and material as well as operating and service-network costs are
difficult to fund. In the absence of sufficient collateral, banks and investors are generally not willing to
provide loans (at affordable interest rates) to companies in view of long payback periods and problems
with cost recovery in general. End-consumers face the same type of problems, in a context where
poverty reigns and even micro-credit tariffs are too high.
The four companies that we studied are set up and function as private entities, and strongly
advocate market-oriented approaches and entrepreneurship. At the same time, they generally have
a variety of (non-)governmental partners with which they collaborate. Often these serve to gain, for
example, access to subsidies or other types of support from international organizations to service the
real poor and/or start up a business in renewable off-grid energy. There are differences in the degree
to which the local companies rely on such external sources. Kamworks and Sunlabob have a mixture
of self-sustaining commercial activities alongside subsidized projects based on donor funding. The
latter type is focused at reaching the poorest consumers while commercial activities target business
markets or middle-class consumers. GS explicitly mentions to get “no direct subsidies” but,
interestingly, the company does not aim for profit, perhaps because it is part of the broader Grameen
family of organizations, which has the provision of micro-credit as cornerstone of the overall business
model. So indirect support may be obtained this way or otherwise, but information about this could
not be found. HPS has designed an innovative for-profit model based on specific local circumstances
which has potential to be scaled up. Still, the company has several socially-oriented investors,
including the Shell Foundation.

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The variety shows that several models may be needed to address local demands, adjusted to the
specific context. The emergence of market-based approaches generally does not diminish the role of
other (non-)governmental actors as the challenges of ‘sustainable energy for all’ are tremendous. In
the final section, we will draw conclusions and discuss the implications for the role of business in
sustainable development.

5.6 Discussion and conclusions

While renewable, off-grid electrification in developing countries offers clear benefits in environmental
and social terms, and is needed in view of the international objective to realise ‘Sustainable Energy
for All’, the economic viability has been a real issue. As a clear illustration of the complexities related
to large-scale involvement of business in furthering development, this article examined sustainable
energy, and explored how innovative market-based models for RET-based rural electrification are
emerging as part of a move away from more traditional, purely donor-funded projects. In line with
the importance of the private sector-based solutions in establishing access to energy in developing
countries, as emphasized by academics and practitioners, the cases of Sunlabob, Husk Power Systems,
Kamworks and Grameen Shakti provided more insight into various business models in rural
electrification. They also show the organizational, financial, regulatory, and technological challenges,
and raise questions as to possible roles that remain or (re-)emerge for governmental and non-
governmental actors.
In comparing these local-level market-based models to international-level donor-driven
approaches, a major strength of the former is the companies’ adaptability to local conditions as
opposed to more generic one-size-fits-all electrification solutions. As these companies are, almost by
nature, embedded in local communities and possess in-depth knowledge of the distinct characteristics
of markets and consumers, they seem better able to develop context-specific solutions which also
creates legitimacy for their approach. Kamworks in Cambodia and Sunlabob in Laos follow a mixed
model with segmentation based on income levels and energy needs, thereby providing the
appropriate technological solution that suits consumers best. Taking Kamworks as an example, the
company emphasizes its commitment to introducing an energy ladder based on this need- and
income-segmentation, whereby the lowest-income households have the opportunity to purchase a
Moonlight solar-powered lantern (through a rental scheme, which reduces the upfront costs of buying
a Moonlight and makes it more accessible), while those with higher purchasing power (individuals or
companies) can buy somewhat more expensive systems.

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Still, there needs to be funding for poor people to be able to get access to energy either via an
arrangement like this or another type of (external) support, with a clear role for governments,
international organizations, NGOs, corporate philanthropy or social venture capital. Or, as in the case
of Grameen Shakti, a reliance on micro-finance ‘soft credit’ schemes for instalment payments for solar
home systems that is offered via its relationship with the Grameen Bank. Sunlabob and Kamworks
developed rental schemes in conjunction with micro-finance institutions and donors. Funding is also
necessary for covering upfront investment and operating costs because it is relatively expensive to set
up and maintain a stable system of electricity provision in remote rural areas – those locations where
the true challenge of ‘sustainable energy for all’ lies. In many places, the situation is comparable to
Cambodia and Laos, with similar issues as those faced by respectively Kamworks and Sunlabob. Until
the moment that local, village-based systems can be connected to a regional or national grid in
collaboration with a domestic utility, costly models will have to be set up and kept running. Even then,
however, the problem may remain that (remote) rural consumers pay a higher price for electricity
than those in traditionally grid-connected urban areas, which is likely to raise questions about equity
(at the national level) at some point.
There may be locations where cheaper solutions are available, as the Indian case with
electricity generation from discarded husk rice shows. Even there, however, funding for pilots and the
start and set-up of the whole system is needed, requiring donors and/or socially-oriented investors
with a longer-term orientation. With declining (relative) costs of renewable energy (see, for example,
the price development of solar panels), possibilities to undertake more activities for less funding might
increase, depending on local weather and geographical conditions, but a long-run commitment to a
specific approach is necessary given the complexities of operating and building networks of suppliers.
These types of support often run counter to donor approaches of funding for larger-scale one-off
projects, competitive ‘bidding’ for grants, or shifting from one location/partner to another to cover
multiple countries, satisfy diverse constituencies or jump on the bandwagon of a successful venture
elsewhere.
There is also the issue, raised by interviewees, that ‘theoretically’ the role of the private sector
is widely accepted, also by international (development) organizations, but that an understanding of
the practical side of how business operates and what it requires to realise a profitable approach is
something different. It is, for example in the case of sustainable energy, relatively easy to underline
the importance of the “right” business models, but the road to building and then supporting such
bottom-up entrepreneurial activity to sufficient scale is complex and protracted. Large, stand-alone
donor programmes can distort local markets if they do not relate to local companies that need to play
a role in longer-term solutions – especially in the case of rural electrification, small-scale rather than

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large business (let alone multinationals) will be actively involved. These are concerns that are
worthwhile to consider in shaping the (future) involvement of companies in establishing long-term
sustainable markets in combination with support from governments and donor organizations, where
applicable. Some issues, such as renewable, rural off-grid electrification, may need a form of
collaboration by public, private and non-profit actors who subscribe to trajectories that become
economically viable in the longer run or that rely on mixed forms of funding or partnership
arrangements. The specifics may differ depending on local circumstances, as some business models
seem to have the potential for economic viability, provided that there is sustained commitment based
on in-depth, local knowledge of markets, consumers and products/services. Further in-depth research
on the peculiarities and dynamics would be very useful.
Related to the difficulties and limitations of collecting information about local companies
active in remote rural settings, our article contained only a relatively small number of illustrative cases.
While we covered a variety of technologies and approaches, embedded in a thorough examination of
the available literature, follow-up studies that include more companies and from other countries
would be helpful to shed more light on the topic. For the selection of a sample it should be noted,
however, that small entrepreneurial ventures tend to be little formalized and often rather locally-
oriented, and may thus be less or not visible on the internet, especially if they operate in poor regions
where access is limited. This means that only those (larger ones) that already have international
connections may show up through a web-based search. A second point is that many initiatives in, for
example, sustainable energy, appear to be (predominantly) run by NGOs or supported by donors to
such an extent that one cannot really speak of a private-sector activity.
Finally, although sustainable energy is a crucial lever for development, research on other
important social and/or environmental issues could generate additional insight, also to extend our
initial exploration in relation to the business model literature. Despite a growing interest in business
models, academic publications hardly reckon with the specificities of developing countries, as we
indicated in our article. As an initial contribution, we discussed our findings against a generic
framework that we deemed most appropriate for the purpose, but this is something that deserves
further careful attention as well.

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 Appendix A / Table 5.3: Overview of interviews on business models for sustainable energy

Actor Organization Participant role Date and time

Energy and Environmental Semi-structured; 20 April

Public Chief Technical Advisor
Partnership (EEP) Mekong 2011; 45 minutes
SNV Dutch Development Semi-structured; 7 May 2011;
Public Senior Advisor Laos
Organization 60 minutes
SNV Dutch Development Semi-structured; 23 June
Public Senior Advisor Cambodia
Organization 2011; 45 minutes
United Nations Economic and
Chief Energy Security and Water Semi-structured; 6 June 2011;
Public Social Commission for Asia
Resources 45 minutes
and the Pacific (UNESCAP)
Nollen Group / Green Semi-structured; 27 June
Private Portfolio and Sustainability Director
Ventures 2011; 45 minutes
Semi-structured; 20 June
Private JanSun Renewable Energy Founder and Managing Director
2011; 60 minutes
Semi-structured; 4 May 2011;
Private Kamworks Founder and Managing Director
80 minutes
Semi-structured; 22 June
Private Lao Intergro Energy Consultant and Managing Director
2011; 45 minutes
Semi-structured; 6 May 2011;
Private Sunlabob Renewable Energy Founder and Managing Director
75 minutes

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 CHAPTER 6

SMART CITY PILOT PROJECTS: EXPLORING THE DIMENSIONS AND CONDITIONS OF

SCALING UP10

6.1. Introduction

In recent years, many cities around the world have witnessed a proliferation of pilot projects that aim
to test or develop new solutions to address urban sustainability issues, improve the effectiveness of
urban services, and enhance the quality of life of citizens. These projects, often labelled as ‘smart city’
projects, come in many forms, sizes, and types and vary in their degree of technical and organizational
complexity. Helped by a growing supply of (inter)national funding opportunities, city administrations
have been actively initiating, promoting, and supporting these projects, reflecting the belief of urban
policymakers and other stakeholders that technology might help to make the city more liveable,
sustainable, competitive, and inclusive while improving public services (Hollands, 2008; Townsend,
2014).
A wealth of funding opportunities for smart city projects has become available in recent years.
Europe’s Horizon 2020 programme provides €18.5 billion in subsidies for clean energy, green
transport and climate actions, implying significant funding opportunities for smart city-related
research (most of it to be conducted in collaboration with local authorities and companies). Also, the
European Regional Development Fund (ERDF) regulation requires that a minimum of 5% of the funds
is allocated to sustainable urban development, which amounts to a minimum of €16 billion between
2014 and 2020. The smart city equally appeals to the private sector. Multinational enterprises (MNEs)
in the information and communication technology (ICT) industry have discovered the potential of
smart city technology as a high-growth business opportunity. These firms offer a great number and
variety of solutions, ranging from energy-efficient and carbon-neutral solutions for city logistics,
building management, and public street lighting, to big data analytics tools and dashboards for
optimization of public services. Accelerated market growth is expected in the next few years. As an
indication, Deloitte (2015) expects the global smart cities market to grow from US$400 billion to
US$1.5 trillion by 2020. To explore and exploit new business opportunities in this sector, many of
these firms have set up city-centric programmes, of which Cisco’s ‘Smart+Connected Communities’
and IBM’s ‘Smarter Cities’ are prime examples. Moreover, these companies engage in local pilot
projects and partnerships with a number of urban stakeholders, including housing corporations, local

10
This chapter was published in Journal of Urban Technology, 2017, 24(4), 51-72, with Willem van Winden as
co-author (for more details, see co-author statements included elsewhere in this dissertation).

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authorities, grid owners, and energy companies, to test or demonstrate innovations in real-life
contexts.
The growing interest from city administrations, businesses, research institutes, and all kinds
of other urban stakeholders in smart cities has led to a great number of pilot projects in recent years.
However, many of them remain small and experimental, and fade out after a (subsidized)
demonstration phase; as a consequence, the impact of solutions developed in these pilot projects on
urban development often remains limited (Vilajosana et al., 2013). There are obvious cases where
scaling does not happen. Some pilots are merely set up to offer inspiration, demonstrating a future
possibility or solution without claiming immediate commercial viability. Such projects are typically run
in a protected/shielded situation with regards to funding and/or regulation. Other pilot projects end
because they fail in terms of technology, feasibility, a lack of demand/interest or otherwise, and
scaling in whatever form makes no sense.
Nevertheless, the lack of scaling is widely perceived as a major problem that needs to be
addressed by policymakers on all levels. The European Innovation Partnership on Smart Cities and
Communities (EIP-SCC) reflects that scaling and replication are considered to be important, and
promotes the sharing viable business models, financial tools and procurement instruments in order
to make smart city projects economically sustainable instead of dependent on temporary subsidies or
grants. Similarly, the requirements for receiving funding from the European Union (EU) for projects is
oftentimes conditional on the inclusion of dissemination/replication activities (roadshows,
handbooks, toolkits, or online tools enabling other cities to draw lessons and replicate projects).
Despite these policy concerns, the issue of upscaling solutions from pilot projects has been
sparsely addressed in the growing literature on smart cities. Many recent papers have focused on
defining and conceptualizing smart cities on a higher level of abstraction (Albino et al., 2015; De Jong
et al., 2015; Gil-Garcia et al., 2015; Höjer and Wangel, 2015), or analyse mega greenfield smart city
projects such New Songdo in South Korea (Shwayri, 2013, Halpern et al., 2013) and Caofeidian
International Eco-City in China (Joss and Molella, 2013). Some contributions offer typologies of smart
city initiatives, mostly based on the domains to which they apply, including economy, mobility,
environment, people, governance, and living (Giffinger et al. 2007). Only a few studies zoom in on the
concreter level of smart city initiatives, projects, and business models (Bakıcı et al., 2013; Hielkema
and Hongisto, 2013; March and Ribera-Fumaz, 2016; Mulligan and Olsson, 2013), or address the issue
of scaling in related fields (May et al., 2015; Van Leeuwen et al., 2015). In this paper, we aim to fill this
gap, and make a more thorough analysis of the factors and conditions that affect the scaling of smart
city projects. Our focus is primarily on pilot projects in the field of energy and mobility, in which both
public and private stakeholders collaborate to develop smart city solutions.

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Our objective for this paper is twofold. First, we want to refine and unravel the rather broad concept
of scaling. While the importance of upscaling is widely recognized, the concept remains fuzzy,
undefined, and undifferentiated. Second, we intend to better understand the conditions and
requirements that drive or hinder upscaling processes in various types of smart city projects. Our
analysis intends to enhance insights in scaling processes, and may also help to design pilots in such a
way that their upscaling potential is maximized.
This paper is structured as follows. The next section clarifies and refines the notion of
upscaling based on existing definitions and descriptions, and presents a typology of upscaling in smart
city pilot projects. The section after that identifies and discusses a number of factors and conditions
that play a role in scaling processes, drawing on insights from an interdisciplinary theoretical
framework. That is followed by a section that contains an illustration of upscaling processes, based on
an analysis of three smart city pilot projects in Amsterdam. The final section discusses the findings,
draws conclusions, and derives some policy recommendations and avenues for future research.

6.2 Dimensions of scaling and smart city project types

There is no single or agreed definition of upscaling. International organizations such as the World Bank
and the World Health Organization (WHO) have adopted definitions of upscaling which can be applied
to a broad number of domains. The World Bank (2005) notes in relation to upscaling that “implicit in
the concept of scaling up is the need to go beyond business as usual, to embrace new technologies,
new institutional arrangements, and new approaches” (World Bank 2005, 16). Upscaling in this
respect includes spatial dimensions (geographically enlarging projects, practices, or programmes, and
reproducing benefits from one local context more broadly); intertemporal dimensions (deepening the
impact of projects or programmes by expanding their duration and continuity); and dimensions
related to influencing the (inter)national institutional environment to accommodate upscaling
processes (World Bank, 2005). Hartmann and Linn (2008, 8) adopt a broad definition for upscaling in
line with the World Bank, and define it as “expanding, adapting and sustaining successful policies,
programmes or projects in different places and over time to reach a greater number of people”. In the
context of health services, the WHO describes upscaling as “deliberate efforts to increase the impact
of health service innovations successfully tested in pilot or experimental projects so as to benefit more
people and to foster policy and programme development on a lasting basis”, which are “backed by
locally generated evidence of programmatic effectiveness and feasibility obtained through pilot
demonstration or experimental projects” (WHO 2009, 1). Although this WHO definition is developed

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specifically in relation to health services, the element of local development and testing of solutions in
pilot projects, before scaling them up beyond this local context, is also relevant for other domains.
Other classifications and descriptions of upscaling from the field of development studies are
relevant for other domains as well. Uvin (1995) identifies four broad directions for upscaling, which
include: Quantitative upscaling, which means reaching more people in the same area, or expanding
the geographic area in which a solution is applied; Functional upscaling, which constitutes expanding
the scope of activities; Political upscaling, which entails influencing the (local-level) political agenda
and institutional frameworks to better facilitate the process of scaling up; And organizational
upscaling, which includes enhancing organizational capacity (either by internal capacity-building or via
external collaboration with partners) to accommodate the broader diffusion and implementation of
solutions (Uvin, 1995). These four directions of scaling are rather similar to the dimensions of upscaling
identified by the World Bank (2005), and provide insight into the broad directions for scaling up
solutions beyond the (local) context in which they have been developed.
Another distinction between upscaling typologies relevant to a broader set of domains is
developed by Cooley and Kohl (2005). They make a distinction between expansion, replication and
spontaneous diffusion: Expansion involves bringing a pilot to scale within the organization(s) that
developed it; Replication, in their definition, means scaling up by others than the organization that
originally developed the initial pilot or model intervention (for example through franchising as one
model); And spontaneous diffusion, involving the spread of good ideas or practices largely of their
own accord.
Based on these definitions of upscaling of international organizations, and building on the
classifications of scaling identified by Cooley and Kohl (2005), we propose three types of scaling for
smart city solutions: roll-out, expansion, and replication. We speak of roll-out when one of the pilot
project partners uses the pilot’s test results to scale up the developed product, service or solution
(market roll-out), or apply the lessons of the experiment within their own organization (organizational
roll-out). This type of scaling applies to manufactured smart city products, or service innovations. We
define expansion as the type of scaling that happens when the pilot project is not closed or dissolved,
but is rather expanded with new partners or users to the project, or by enlarging the geographical
area in which the project operates. This type of scaling is relevant for smart city projects such as
mobility platforms, tourist smart cards, energy exchanges, online neighbourhood communities. The
third type of upscaling that we identify is replication, the most complex type, which can apply to all
types of smart city solutions which are tested and developed in pilot projects. With replication, the
solution that has been developed in a pilot project is replicated in another context, which can be in
another organization or part of the city, as well as in another city altogether. Hence, replication can

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be done by the original pilot partnership but also by others, and the replication can be exact or by
proxy.

Scaling type Description Manifestations Examples

Roll-out Bringing a smart city solution Market roll-out Smart energy meters
to the consumer or business- Organizational roll-out introduced in consumer
to-business market, or market; system for car
applying the solution in the sharing implemented in
entire organization municipal organization
Expansion Add more partners, users, or Quantitative expansion Add functionalities or
functionalities to a smart city Functional expansion partners to a tourist smart
solution, or enlarging the Geographic expansion card system; enlarge the
geographic area in which the geographic area of a smart
solution is applied lighting solution
Replication Replicate (exactly or by proxy) Organizational replication Replicate a tested vehicle-
the solution in another Geographic replication to-grid system in a new part
context by the original of the city; replicate a smart
partners involved in the pilot traffic light solution in
project, or by others another city

Table 6.1: A typology for upscaling

A smart city project can be subject to several types of scaling; for example, a smart card solution for
tourists can be expanded (by adding more partners) or replicated (in another city). Also a distinction
must be made between scaling of the project itself (which is the case in expansion and replication) or
scaling of particular products/services that were developed in the project (as is the case in roll-out).
In the latter case, the project served mainly as test environment, and is dissolved in the scaling stage.
Our empirical analysis of smart city pilot projects in Amsterdam will further illustrate these three
scaling types and their characteristics. In the next section, we will take the next step and identify,
drawing from a variety of literatures, a number of requirements and conditions for upscaling.

6.3 Conditions and factors that affect scaling

Several literatures offer clues on what drives upscaling processes. In this section, we identify the
following drivers and enabling conditions: prospects for economies of scale, the management of
ambidexterity, knowledge transfer mechanisms and incentives, regulatory and policy frameworks,
data exchange and system interoperability, and (lack of) standards to measure return on investment
of smart city projects. Each of these factors are described in more detail below, and will be connected
to the types of upscaling at the end of this section.

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Prospects of economies of scale
Successful pilot projects will be scaled up more easily when there is a prospect of economies of scale
(leading to lower unit costs and/or higher profits), and an incentive to capture them. Economies of
scale imply that fixed costs (including the costs of research and development (R&D) and pilots) can be
spread out over a larger volume (O’Sullivan et al, 2003). This mainly applies to the roll-out type of
scaling, in which a single firm or organization is able to capture the benefits of scaling. In this respect,
Hartman and Linn (2008, 19) note that where commercial firms have a market incentive for upscaling,
public and not-for-profit organizations have a tendency “to move from one new idea to the next, from
one project to another”, rather than to scale up.
In the last decades, a traditional supply-oriented view on economies of scale has been
enriched by a network perspective. In a growing number of information-intensive sectors (and
relevant for many smart city solutions), the value of a product or service increases with the number
of people who use them; examples are mobile phones and social media applications. These economies
are referred to as ‘network economies’ or ‘demand-side economies of scale’ (Shapiro and Varian,
1999). To capture such network economies, developers of smart city products or services have an
incentive to build a large user base in a short period, taking initial losses for granted. A large user base
offers scope for auxiliary services that further enhance the value of the product. For example, when
more people drive electrical cars, there is a bigger market for charging stations, or specialized repair
services. The recent emergence of digital platforms (such as Uber, Airbnb and Kickstarter) has added
a new dimension to network effects. In platforms, network effects are two-sided: the growth of supply
and the demand side of the platform (for example, riders and drivers in the case of Uber; suppliers
and users of local renewables in the case of a local energy platform) must be well balanced to create
value for both sides.
If one side of the platform is underdeveloped, the scaling process stalls. To prevent this, a
scaling strategy could be to subsidize growth in the start-up phase (in the case of Uber, the firm gave
free rides to do this). In this regard, Parker et al. (2016) discuss the typical “chicken-and-egg” problem:
users won’t come to a platform when it has no value to offer, and there is no value if there are no
users. Many platforms fail to take off because they do not solve this dilemma. This platform
perspective on scaling is highly relevant as many smart city solution have platform characteristics:
mobility platforms (where traffic information is exchanged), energy platforms (that intermediate
between supply and demand of renewable energy), and all sorts of smart city applications in the realm
of the sharing economy.

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Management of ambidexterity
Scaling requires an adequate management of the transition from the pilot/testing phase of a project
to the exploitation phase. From an organizational perspective, the literature on ambidexterity offers
important insights. A central tenet here is that explorative activities such as innovation and R&D (or:
the pilot stage of a smart city solution) require different competences than activities related to large
scale production and exploitation (the scaling phase). Organizations face the challenge to strike a
balance between exploration and exploitation (March, 1991, and many others).
A balanced approach of pursuing both exploration and exploitation (i.e. ambidexterity) is
essential for performance. Organizations that focus on exploration to the exclusion of exploitation
bear the costs of experimentation but gain little of its benefits, whereas an excessive on exploitation
will hollow out a firm’s competitive performance in the longer run. Scholars have discussed how
organizations can achieve and manage balance (Andriopoulos and Lewis, 2009; Lavie et al., 2010; Lavie
and Rosenkopf, 2006; Raisch et al., 2009). Most accounts argue for some form of separating
exploration from exploitation (Stettner and Lavie, 2014). This separation can be temporal, where a
firm manages transitions between exploration and exploitation over time (Brown and Eisenhardt,
1997). Also, it can be organizational (Benner and Tushman, 2003), enabling a firm to maintain distinct
activities while engaging in internally consistent tasks within separate organizational units, dedicated
to either exploration or exploitation (O’Reilly and Tushman, 2008; Smith and Tushman, 2005). In
similar vein, Ries (2011, 261) discusses the challenge of connecting innovation teams in companies
with the mainstream company operations. Isolating the innovators from the parent company rarely
leads to sustainable innovation and scaling, as operational managers will strongly resist the
innovations “sprung upon them”. He argues for creating an ‘innovation sandbox’ in which the
innovation team can work independently, but remains in close contact and accountable to the parent
organization. Similarly, Samoff and Molapi Sebatane (2001) find that upscaling is hampered when
vested interests within an organization accept a small pilot but perceive scaling it as a threat.
In the context of upscaling smart city solutions from pilot projects, the concept of
ambidexterity has significance; smart city pilot projects inherently involve exploratory activities, set
up to test new technologies or innovative concepts. If we follow the analogy and frame the process of
scaling as the transition to the exploitation stage, the literature suggests performance will be
enhanced by separating the two stages; scaling up requires different competencies, and this must be
accounted for. For each of the different manifestations of upscaling, organizations should therefore
take a balanced approach to their exploration and exploitation activities, and arrange a connection
between the innovation team and operations/senior management.

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Knowledge transfer mechanisms and incentives
Knowledge transfer within and between organizations is often necessary for scaling to happen (Du
Plessis, 2007; Foos et al., 2006; Seidler-De Alwis and Hartmann, 2008; Tamer Cavusgil et al., 2003),
especially for the replication type of scaling. Replicating a successful smart city solution developed in
context a to context b requires that the know-what and know-how (tacit or explicit) is transferred
from place to place, but also needs a contextualization of knowledge. Especially the transfer of tacit
knowledge, which is “encoded knowledge and resides in the firm’s system” that is “difficult to
interpret and transfer (i.e. uncodified) from one firm to another” (Tamer Cavusgil et al. 2003, 7), is key
in the replication process. Replicating a project in another cultural context requires an adequate
accommodation to cultural values and social-interaction patterns, and often implies a re-configuration
of the partnership. The simpler the institutional framework and the less complex the relationships
between actors, the swifter and more successful replication can be achieved (Binswanger and Aiyar,
2003).
Large companies often are able (and have financial incentives) to organize effective
knowledge transfer mechanisms. In the smart city domain, MNEs like IBM or Cisco have developed
global smart city programmes that help them capture the benefits from their presence in many
locations and their existing relations and contracts with cities across the world. These companies
deploy internal knowledge transfer mechanisms, enabling them to apply lessons from pilot projects
effectively, and sell smart city solutions in a large number of cities (Paroutis et al., 2014; Söderström
et al., 2014). However, many smart city projects are run by municipal authorities and smaller, local
players, that do not have an international network of offices, and lack the competences and financial
incentives to replicate solutions elsewhere. In such cases, knowledge transfer is more difficult to
organize, and good pilot results are often not disseminated. The European Commission (EC) –a big
funder of smart city projects– recognizes the relevance of knowledge transfer as a condition for
replication, and stipulates that project proposals must have work packages on knowledge sharing and
dissemination in order to facilitate replication. In the recent Horizon 2020 ‘smart cities and
communities lighthouse projects’ call, leading cities are invited to develop smart city solutions with
replication potential for “follower cities”, that must be part of the consortium from the outset;
Consortia must make explicit how the knowledge transfer is organized between contexts, and
dedicate substantial resources to it (EC 2013; 2017).

Regulatory, legal and policy frameworks

Regulatory, legal and policy frameworks play a conditioning role in scaling processes of smart city pilot
projects. Scaling up solutions will be easier in cities with high ambitions in the smart city realm (for

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example reducing CO2 emissions, increasing the use of renewables, reducing energy consumption,
and public service digitization). However, in many cases, public funding is a bottleneck. Vilajosana et
al. (2013) find that many municipal governments are cash strapped, and have often only piecemeal
funding (often external) available for small projects; Scaling is particularly difficult when the pilot relies
on expensive technology and other resources (Hartman and Linn, 2008).
Regarding energy-related smart city projects, Vilajosana et al. (2013) note a lack of consistent
policy frameworks on key issues, such as feed-in tariffs and carbon pricing; scaling and replication
across national borders is hampered by large variations in rules, legislation and incentive schemes.
Also, public procurement policies and regulation can affect scaling. One the one hand, a local or
regional public administration can act as launching customer when a pilot project results in a good
solution, and thus contribute to the scaling of it. On the other hand, public procurement rules can also
imply that companies that participated in a successful pilot cannot take for granted that they will win
the big order in the scaling stage.
Some pilot projects fail to scale up because they are, for the sake of experimentation, shielded
from real-world legislation and market forces. In the literature on transition management and
strategic niche management (Coenen et al., 2010; Hoogma et al., 2004; Kemp et al., 1998; Smith et
al., 2005; Truffer et al. 2002), pilot projects are framed as playing out in ‘protected niches’, which can
be defined as “protected spaces created by specific actors –companies, policymakers or citizen
groups– with the strategic aim to test and develop a technology and to prepare it for further diffusion”
(Truffer et al. 2002, 113). Niche development occurs through experiments in concrete places (e.g.
though pilot projects in cities). At the same time, local experiments tend to add up to a ‘global niche’
through the exchange and sharing of lessons and insights across locales (Geels and Raven, 2006; Raven
and Geels, 2010). This leads to the articulation of common/shared problem agendas, expectations,
theories, and success narratives, articulated and circulated by intermediary actors such as industrial
lobbies, policy networks, user groups, and not-for-profit organizations, thereby influencing new
experiments and funding programmes for research and innovation (Carvalho, 2014). In this approach,
scaling does not unfold at the project level but rather is a long-term process where pilots may fail (due
to overprotection or shielding) but play their part to achieve a system transition.

Data and systems interoperability

Many smart city projects rely on data exchange between organization, and interoperability of
information technology (IT) systems. This is especially relevant for multi-stakeholder platform-type
projects in which data exchange and sharing is a key element. Here, scaling is hindered when there
are no (or not yet) widely accepted technical standards. Walravens and Ballon (2013) note a lack of

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transversal and interoperable technological platforms to manage the huge amounts of data generated
in smart city contexts. In addition to technical compatibility issues, the willingness of partners to
engage in interorganizational data sharing matters as well. For data sharing on smart city-related
platforms, such as Geographic Information Systems (GIS), Nedović-Budić and Pinto (2000, 461)
identify that “the nature of the coordination process is key to establishing an atmosphere of trust and
mutual collaboration and for the overall success”. Trust inherently matters in interorganizational
exchange relations (Zaheer et al., 1998), and is an important condition for partner organizations to
share their data.

Standards to measure return on investment

Many smart city technologies are in an immature stage and it is unclear or uncertain what they will
deliver in terms of return on investment. They typically hold promises of costs savings and efficiency
improvements, but there are high margins of uncertainty, especially in the domain of clean energy
solutions where returns depend on fluctuating energy prices, feed-in tariffs, and unpredictable
policies, subsidies and regulations. Vilajosana et al (2013) signal a dearth of appropriate and
systematic methods to identify return on investment of smart city technologies. For the private sector,
all this “translates into a certain immaturity of the market”, which in turn is enhanced by the
complexity of relationships with the public sector (Vilajosana et al. 2013, 129), resulting in low capital
investments.

Summing up
Table 6.2 presents a synthesis of the findings and insights discussed in the last sections. The two
heading rows repeat the three types of scaling identified in section 6.2: roll-out, expansion, and
replication. Next, the table summarizes the factors and conditions that affect upscaling, as discussed
in the last section. Given the large diversity in smart city projects, the scaling dynamics is contingent
on the type of smart city solution/innovation that is being tested (a product/service, a process
innovation, a platform-type innovation, or a more systemic innovation); Also, as discussed, the weight
of the requirements varies between the three types of scaling (roll-out, expansion and replication).

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 Scaling types Roll-out Expansion Replication
Conditions
Bringing a smart city solution Adding partners or users to a Replicate (exactly or by proxy) the
to the market (market roll- smart city solution, enlarging the solution in another context
out), or apply it in the entire geographic area, or adding (organization, geographic area), by
organization (organizational features the original pilot partnership or by
roll-out) others.
Mainly applies to Product and service Projects, platforms, process, and Projects, platforms, process, and
innovations system innovations system innovations
Examples Smart meters and displays Mobility app covers wider urban Traffic light solution that gives
tested in the pilot are now area and also offers parking green light to emergency services is
produced at large scale by solutions replicated in another city
private company
Scaling up a smart city pilot project requires:
Prospect of economies of scale X X X
-Supply-side economies of scale
-Network economies
Effective knowledge transfer mechanisms and incentives X
Effective management of ambidexterity X X X
-Separation between exploration and exploitation
-Alignment between pilot team and senior management
Enabling regulatory, legal and policy frameworks X X X
-Vision and ambitions of public authorities
-Procurement policy and regulation
-Public funding for scaling
-Preventing overprotection of the pilot
Data, standards, and systems interoperability X X
Standards to measure returns on investment X X X

Table 6.2: Scaling types and conditions

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 6.4 Methodology

To illustrate the dynamics of scaling, this section presents an account of three smart city projects
developed in Amsterdam. The first case is Climate Street, a pilot project which illustrates the roll-out
of product and service innovations, although broader expansion and replication were initially
envisioned; The second case is Energy Atlas, in which expansion and replication of an information-
based platform on energy data is central to the upscaling process; The third and last case is
Cargohopper, a sustainable city logistics solution using electric vehicles, that has been replicated in
several cities. For each case, we discuss the process of upscaling in more detail.
For this study, we adopted a qualitative research approach based on a multiple case analysis.
Evidence was collected through a documentation study combined with semi-structured face-to-face
interviews with project leaders and stakeholders of smart city pilot projects, and representatives from
the Amsterdam Smart City platform. All selected projects were in an advanced development stage or
finalized at the time of our evaluation, to allow a thorough analysis of upscaling in the project. The
three cases presented in this paper (Climate Street, Energy Atlas, Cargohopper) were selected on the
basis of theoretical sampling from a set of 12 Amsterdam Smart City pilot projects, which have been
evaluated between November 2014 and April 2016. A total of 37 interviews were conducted with
participants in these 12 smart city pilot projects, with 12 interviews specifically related to energy
efficiency (see appendix A for an overview). Interviewees included representatives of the city
administration, multinational enterprises (MNEs), small- and medium-sized enterprises (SMEs), grid
management firms, and utilities involved in one of the selected projects. Interviews lasted between
one hour and two hours, and were transcribed into detailed interview reports. These results were
triangulated with secondary sources such as internal evaluation documents, press releases, and
personal communications between project partners (for further details, see van Winden et al., 2016).
Each case discusses different types and mixes of upscaling processes in smart city projects, and
identify some of the underlying dynamics driving or hindering this process. Although all three projects
relied to some extent on subsidies in their pilot stage, they are not excessively ‘shielded’ by legal or
regulatory protection, which would have reduced the chance of upscaling from the outset. All three
forms of upscaling (roll-out, expansion, replication) are illustrated by one of the cases presented in
the next section.
For each case, we briefly describe the history, rationale and development process, and
identify the key organizations in the partnership. Inherent to our focus on upscaling of smart city
solutions from pilot projects, we identify how the upscaling process has unfolded in each specific
project, and what drivers and barriers were faced.

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 6.5 An illustration of scaling dynamics: three cases from Amsterdam

Climate Street
Climate Street is an illustrative case that demonstrates (i) the co-existence of multiple types of scaling
from one pilot project; (ii) the significance of ambidexterity in the roll-out process; (iii) the difficultly
of replication in the absence of knowledge transfer incentives; and (iv) the importance of securing
public funding after the pilot stage.
Launched in 2009, Climate Street was aimed at turning a busy street in Amsterdam’s city
centre into a living lab and showcase for smart products and services, to show how to make a high
street more sustainable in all respects. Climate Street was envisioned as a beta lab: a platform for all
sorts of experiments that would enhance sustainable urban development. The number of activities
was very broad from the outset: retailers in this street were invited to apply a broad range of smart
city products that would reduce energy use or waste (product innovations), and various experiments
were set up in the fields of waste collection, logistics, and innovative street lighting (process
innovations). For technology companies and utilities, the project leadership positioned the street as
an interesting living lab where they could test new products that could later be commercialized (or
‘rolled out’ in our terminology). In some cases, the project management team actively approached
companies, inviting them to test their products and services there; in other cases, companies
approached the project management, to inquire about the possibility to test their products and
services in Climate Street. The city was the main funder of the programme, and helped to set
conditions for realising urban innovations: permits, solving legal issues, access to civil officers with the
right skills and competences.
The partners in the pilot project had different roles and interests. Various city departments
involved in the project saw the Climate Street as a unique lab to learn how to work with local retailers,
have them adopt cleaner technologies, and thereby contribute to the cities’ ambitions regarding
emission reduction. The lessons could be disseminated to other retail streets. Moreover, the city
administration used the street to experiment with alternative urban services (in the field of garbage
collection and street cleaning), expecting that lessons learned could be applied in the municipal
organization at large (a case of organizational roll-out). Retailers hoped that applying new
technologies would help them achieve saving on their energy bills, and/or increase the sustainability
of their businesses. The technology companies and services providers hailed the pilot project to be a
unique living lab to test their new products and concepts in a real-life setting, and then roll them out
in a later stage (market roll-out). Thus, the partners, implicitly, had different expectations and
ambitions regarding the scaling of the Climate Street project. Also, the city administration envisioned
the project as a demonstration, to be replicated in other cities.

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All envisioned forms of upscaling turned out to be rather problematic. To the knowledge of the project
leader, the only roll-out success was realized by Quby, a start-up firm that tested a smart energy
display in the Climate Street project. The test was successful, and the solution was bought by Eneco
(a major electric utility in the Netherlands) that sold over 100,000 energy displays to date. In this case,
exploration (pilot project) and exploitation (a case of market roll-out) were explicitly separated and
performed by different organizations. In terms of replication of the concept, the city administration
considered the Climate Street project as an example to be followed (replicated) by other streets in
Amsterdam, and possibly beyond. To enable other cities to set up a similar project, a consultancy
agency was hired to write a document titled ‘blueprint for sustainable shopping streets’, a handbook
and source of inspiration for other high streets based on the experiences in the pilot project. While it
is unclear to what extent this blueprint has been used for replication, the project had a broader
impact: due to the effective communication of the Amsterdam Smart City platform, Climate Street
attracted wide attention from professional media and local governments, nationally and
internationally, and many delegations made study visits to learn from experiences in Climate Street.
It is beyond the scope of this study to assess whether these visits have played a role in replication, but
at least some degree of knowledge transfer took place.
While Climate Street was initially envisioned as a permanent lab for experiments that would
contribute to sustainable development in the city, this failed to materialize due to a lack of public
funding after the pilot stage and ended in 2012. The project was unable to reach the point of being
financially self-sustaining through contributions of private partners. Hence, Climate Street reflects the
importance of commitment and ownership amongst project partners as a condition for successful
upscaling.

Energy Atlas
Energy Atlas is a platform-type smart city innovation, in which key public and private players in the
local energy system decided to share their data and create an online interactive platform (the ‘Energy
Atlas’) that reveals data on real energy, water and sewage use on the level of the building block for
the entire city of Amsterdam. The Energy Atlas helps to identify the geographic locations in the city
with the highest potential to adopt new energy solutions. The case includes both expansion and
replication in the upscaling process, and demonstrates that: (i) the vision and ambitions of public
authorities can be an important enabling factor in scaling processes; (ii) knowledge transfer and
learning mechanisms are crucial for wider dissemination of smart city solutions; (iii) system
interoperability is key to facilitate effective data sharing between different organizations; and (iv) that
alignment between the pilot team and senior management of parent organizations is important in the
design and scaling stage.

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In its initial development stage, the project was supported by European funding from the TRANSFORM
project, executed between January 2012 and August 2015, in which six European cities collaborated
with the aim to reduce carbon emissions (Van Warmerdam and Brinkman, 2015). The Amsterdam city
administration was the driving partner in the project: it led and managed the project from the outset,
and organized the process of partner engagement and data integration. Participating utilities and
housing corporations in Amsterdam agreed to provide their data for free, on the condition that the
platform would be open and would not reveal energy use on the level of individual clients. It was a
key challenge for the partners to cluster information on clients in such a way that it would be
impossible to trace back individual use. Despite many technical, legal and data issues, senior
management of the partner organizations backed the project, as they realized the value of sharing
data in the Energy Atlas platform. The project partners, as well as experts in the energy sector that we
interviewed, consider the Energy Atlas developed in Amsterdam a great success. It is internationally
unrivalled, especially because it gives up-to-date and real (rather than projected or estimated) data
on a wide variety of energy consumption and production in the entire city. The Atlas now floats
without European subsidies, and the local partner management boards have committed to continue
to feed the platform with data, and keep it technically up to date. In scaling up the Energy Atlas
developed in Amsterdam, the planned process of expanding of the number of partner organizations
willing to share relevant energy data in the platform will enhance the functionality and usability as a
decision-making tool even further.
Replication of the Energy Atlas beyond the context of Amsterdam was a central ambition of
the project partners from the outset. To this end, knowledge sharing was facilitated by a ‘Replication
and Exploitation Campaign’, aimed at transferring the tools and lessons learned about energy
transition to other cities. Three organizations, Accenture, the Austrian Institute of Technology, and
Macomi, developed an online ‘Decision Support Environment’ (DSE) for urban energy planning, which
enables partner cities to simulate scenarios, and helps to design and assess interventions in the energy
system. In addition, handbooks and masterclasses were developed to transfer the lessons on energy
transition that were developed in the project. A key incentive to stimulate this widespread knowledge
sharing came from the conditions related to the European funding on which the project relied, as well
as the open data vision of the project leader in Amsterdam. In addition to sharing knowledge
externally, one of the interviewees identified that consultancy firm Accenture (who played an
important role in the development of Energy Atlas) also uses its experiences and lessons learned in
Amsterdam to advice other cities on this topic. This illustrates how multinational firms can leverage
internal knowledge transfer mechanisms to use experience from pilot projects in one local context,
and use these experiences in their activities in other contexts.

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Our interviewees indicated that replication in other cities remains difficult. The value of the Energy
Atlas critically depends on detailed geo-spatial and energy data inputs that must come from a variety
of local partners, including different utilities, housing corporations, and municipal departments. Thus,
replication the Atlas elsewhere requires the formation of new local coalitions, involving high
communication and transaction costs. Data issues can also be a complicating factor. Given that this
information is embedded in the systems of different partners, a limited degree of system
interoperability and compatibility between existing data sets can potentially be a hindering factor in
this process. The developers of the tool in the pilot project in Amsterdam identified a set of legal,
economic and data quality challenges for open energy data, and recognize their “limited success in
getting the right data at the right level of granularity”, arguing that data owners often face technical
difficulties and do not perceive the value behind opening of their data (Accenture 2015, 17). Existing
knowledge and experience in working with relevant systems to develop an Energy Atlas, such as
Geographic Information Systems (GIS), can contribute to a successful development process.
Amsterdam’s Energy Atlas could draw on existing databases and maps, while many cities (especially
smaller ones) lack the expertise of such systems.
The replication ambition for the Energy Atlas was not confined to the consortium that initially
developed it, as many municipalities in the Netherlands expressed their interest to somehow replicate
the Energy Atlas as well. Inspired by the Amsterdam example, the association of Dutch municipalities
is currently developing a national version of the Energy Atlas. It is supported by the national
government, and the Amsterdam team acts as advisor.

Cargohopper
In the Cargohopper project, a private logistics company developed and tested a sustainable solution
for inner city deliveries using electric transportation. The solution was first piloted in the city of
Utrecht, and was then replicated in Amsterdam in collaboration with the city administration. It
demonstrates that (i) firm-level internal knowledge transfer is important for replication; (ii) effective
management of ambidexterity is needed to move from exploration to exploitation; (iii) prospects of
economies-of-scale can be a prerequisite for a scalable business model; and (iv) local-level regulations
–in this case a strict regime to ban diesel trucks from the city centre– can be a driver of sustainable
innovation.
The logistics company Transmission was the initiator of the project. This company, with
various establishments in the Netherlands, developed the idea for the Cargohopper as a response to
the growing number of Dutch cities that had introduced bans of large diesel trucks from inner city
zones (labelled as ‘environmental zones’), in order to limit pollution and congestion. The Cargohopper
solution consists of two interrelated components: an electric freight vehicle and a smart distribution

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system. The electric freight vehicle has the features of a ‘road train’ with separate carriages, and
delivers shipments to businesses in the city’s central area where no diesel trucks are allowed. In a
distribution centre (located at a facility just outside the zone), shipments are processed, bundled, and
loaded onto the electric freight vehicle. These shipments are bundled by address into separate
carriages, allowing efficient delivery to businesses based on the proximity of delivery addresses in the
same area. Amsterdam’s city administration allowed Cargohopper to operate within the
environmental zone in the city centre for the delivery of goods, and partially subsidized the
development of the first electric vehicle. For lead project partner Transmission, the pilot project
created an opportunity to replicate the Cargohopper concept in Amsterdam and prepare it for further
growth to other cities (i.e. exploitation), after an initial stage of experimentation with the concept in
the city of Utrecht (i.e. exploration). At present, multiple Cargohopper vehicles are operational in
Amsterdam, as well as in other Dutch cities.
Replicating a smart city solution developed in specific local context requires that both tacit or
explicit knowledge is transferred to a new context efficiently. In the case of Cargohopper, where lead
project partner Transmission was responsible for the replication process, the transfer of knowledge
from the pilot team to senior management and other teams in the organization was an essential part
of the replication process. The case also highlights how economic and technical conditions can
influence the potential for upscaling to other cities. The prospects of economies-of-scale when
replicating the Cargohopper is an important prerequisite; there is a need to have a minimum threshold
of clients in a city using the delivery service to develop a viable business model. Achieving scale
advantages is especially relevant in the case of commercial transport, given interviewees suggested
that a (more sustainable) solution should not impose significantly higher costs for businesses using
the service compared to existing modes of (less sustainable) transportation. This potentially makes
the service less attractive to smaller cities, in which achieving scale advantages could prove to be
difficult. In terms of technical standards, several factors can pose limitations on replicating
Cargohopper, including the maximum driving range, driving speed, and cargo load. While these
specifications fit with the infrastructure of Amsterdam’s city centre, these specifications may prove to
be problematic for major cities which are more spread out over a larger geographic area. If technical
standards can be sufficiently adapted to fit with the geo-spatial context to which it is replicated, the
solutions becomes more attractive to a broader variety of cities. Interoperability between systems of
different transportation firms also complicates the upscaling process: in this case, Transmission can
only handle freight which is part of the firm’s own system due to a lack of interoperability with the
systems of other transportation firms. Obviously, competition and diverging interests between firms
offering these commercial services also impact this process.

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Finally, Cargohopper also shows that legal and policy frameworks can be an incentive for sustainable
innovation. In this case, such incentives included stricter regulation for vehicles allowed to operate in
the environmental zone in the city centre, combined with partial subsidies for the development for
the first electric Cargohopper vehicle. The full-electric vehicle design, and underlying distribution
system just outside the environmental zone, were developed in response this local-level regulation.

6.6 Discussion and conclusions

Smart city technologies hold the promise of improved urban services and more liveable and
sustainable cities. European cities have set up a growing number of smart city pilot projects, in which
various stakeholders apply new technologies to address urban challenges or improve service
provision. In the last decade or so, European, national, and local public funding for such initiatives has
grown, and also the private sector is increasingly interested in investing in smart city projects.
Recently, there has been a growing concern among policymakers and funders about the impact of
these pilot schemes, mainly because of the low rate of upscaling; many projects fade out after the
pilot project ends and/or when the project subsidy dries up and fails to make a substantial impact.
In this paper, we have made an attempt to analyse the process of upscaling in more detail,
both theoretically and empirically. We identified three upscaling types: roll-out, expansion, and
replication, each with its own dynamics and specificities. Next, we presented a framework (based on
a study of various literature) containing conditions and requirements for scaling processes to take off.
These include: the prospect of reaching economies-of-scale; the presence of knowledge transfer
mechanisms and incentives; management of ambidexterity in exploration-exploitation activities; the
presence of enabling regulatory, legal, and policy frameworks; interoperability between systems,
data, and standards; and the inclusion of standards to measure returns on investment. Finally, we
provided a descriptive analysis of the upscaling process (or the lack of it) in three smart city projects
developed in Amsterdam, one of the most active cities in this field.
In the empirical analysis of smart city pilot projects in Amsterdam, we illustrated the impact
of the conditions and requirements on upscaling processes in several ways. The first case, Climate
Street, demonstrates the importance of organizational ambidexterity in the roll-out process, and
shows how the absence of knowledge transfer incentives for partner organizations in a pilot project
can hinder replication. The case also reflects how a lack of funding can hinder the upscaling process;
the pilot ended prematurely because of a lack of funding and commitment by partner organizations,
while it was envisioned to turn the project into a permanent urban lab for experimentation with smart
city technologies. The second case, Energy Atlas, reflects how knowledge sharing and learning
mechanisms are important for the development and wider dissemination of smart city solutions. It

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demonstrates, in a multi-stakeholder setting, the importance of having a strong link between a pilot
project team and the parent organization, as well as an explicit common interest and commitment to
move the project forward. In terms of sharing data, which is a crucial aspect of most smart city
platform innovations, the case also showed that system interoperability is a key factor for partners to
open up their data sets. The third case, Cargohopper, reveals that internal knowledge transfer
mechanisms in the firm are important to replicating a solution from one locale to another, and
confirmed that the prospects of economies-of-scale can be a prerequisite for replication; without
sufficient scale, the solution developed in the pilot project is not commercially viable. Additionally,
the Cargohopper case suggests that effective management of ambidexterity is needed in order to
move from exploration to exploitation.
Overall, we conclude, in line with Hartman and Linn (2008), that the design of the pilot project
has an impact on its upscaling potential. Hartman and Linn (2008: 16) state in this respect that a pilot
project must be set up with a clear vision on how scaling processes will take shape (in any form): pilots
should be designed in such a way that they could be scaled up, if successful, and so that key factors
which will be necessary for a scaling up decision—with what dimensions, with which approach, along
which paths, etc.—are already explored during the pilot phase. Our study also demonstrates that
upscaling is a multi-layered process, and different types of scaling might follow from a single pilot
project. For both policymakers and practitioners, taking the potential path(s) for upscaling into
account in the design stage of the pilot project is, therefore, important for the wider diffusion of smart
city solutions.
Understanding the scaling process of smart city solutions requires insights into the subtle
interplay between the project level and the individual organizational/firm level. Many smart city
projects are collective ventures of different organizations, each with different rationales, ambitions,
and perspectives regarding upscaling. Partners may enter a project for a variety of reasons: to test
how consumers react to new products; to demonstrate technical feasibility of a solution on a small
scale (the technology companies in Climate Street case); to share data in an integrated platform to
enable cities to reach sustainability ambitions, improve urban services, and use energy more efficient
(as was the case in the Energy Atlas case); or to develop and test a prototype version of a solution in
a real-life urban environment, which fits with stricter environmental regulations (which occurred in
the Cargohopper case).
Private partners may also join a project to (re)establish close relations to the local government
(especially relevant for companies that have the local government as an important client), or from a
corporate social responsibility perspective and/or to improve its corporate image. While such partners
may have a clear motive for participating in a smart city pilot project, we also found that other projects

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do not scale because of a lack of incentives; they are often formed by coalitions of small local players
who have no incentive to replicate the success elsewhere. The inclusion of mechanisms and incentives
in pilot projects to maximize the upscaling potential for solutions, either via a roll-out, expansion, or
replication process, should therefore be carefully considered by policymakers.
Our study puts the emerging policy orthodoxy about scaling as the holy grail of project success
into perspective. Even in the absence of upscaling, pilots generate lessons and insights that might
benefit ensuing projects—if captured, documented, and shared appropriately. On a higher level of
abstraction, the transition management literature highlights the value of sequences of experiments,
including failed ones, as part of the process of newly emerging narratives and agendas, influencing
established regimes. Our interviews with local project leaders and other stakeholders revealed
significant project-to-project learning processes, where tacit knowledge from former projects is
infused into new ones. Moreover, a project can be successful without upscaling in other respects as
well: Energy Atlas is seen by its local stakeholders as a success, the local initiators maintain and fund
it without intending to expand or replicate it elsewhere. It evolved from a pilot project to a useful and
stable platform. These findings suggest that a single-sided focus on scalability could reduce or impede
more fundamental experiments that may not scale immediately but function as small building blocks
in a process of systemic and more fundamental changes, and entail important learning processes.
Policymakers need to be aware that the changes they are pursuing in society with their funding will
take time and require the accumulation of many projects.
Most smart city technology projects are not only technical, but involve social, cultural,
political, institutional, and behavioural changes that are very context sensitive. In this respect, there
are reasons to be doubtful about the effectiveness of dissemination and replication activities
(producing handbooks, toolkits, or online tools) so typical in EU-funded projects, because the required
knowledge is tacit; a project’s success is highly contingent on local coalitions and conditions. Finding
more effective ways for disseminating tacit knowledge would therefore enhance the upscaling
potential of pilot projects. Yet, from the accumulation of local experiments in pilot projects in different
cities, and the exchange of lessons and insights across different local contexts, a broader adoption of
scalable solutions for sustainable urban development can develop.
Scaling is difficult for small and local players. Technology MNEs such as IBM and Cisco, as well
as other international service providers (Accenture in the case of Energy Atlas), are able to apply
lessons learned or replicate solutions in cities, namely by combining their local presence in various
cities with internal knowledge transfer and ambidexterity. They manage to transfer solutions from
one place to another and capitalize on their investments (achieving scale economies). Start-ups and
SMEs lack such networks and competencies, and have much more difficulty effectively scaling up

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smart city solutions. This explains why so many applications and solutions never outgrow the local or
even parochial level, unless adopted and scaled up by a larger player. The case of Climate Street is
illustrative: the successful roll-out of the energy display only happened after the start-up company
was taken over by a larger player that managed to sell the displays on the national market. Further
research is needed on the role of multinational firms in smart city pilot projects and the wider diffusion
of solutions developed in these projects.
Smart city projects are fascinating new arenas where different urban stakeholders (public,
private, and civic) engage in coalitions and innovate together, and more research is needed to study
the dynamics in this arena of upscaling where different interests meet and collide. For a start, our
research suggests that project participants rarely openly discuss each other’s upscaling perspective
and ambitions during the pilot project’s formation stage, nor do they build in mechanisms that ease
the transition to the upscaling phase. When the pilot ends, this puts a strain on the upgrading stage
which become a project of its own. This finding resonates with insights from the business literature
that long-term competitiveness relates with ambidexterity; a firm’s ability to find a good balance
between exploration (developing new knowledge and competences associated with R&D and
innovation) and exploitation (implementation, scale production, refinement). Hence, specific
attention to upscaling potential and achieving longer-term impact beyond the pilot project presents
an important opportunity for future research on smart city projects. Pilot projects, after all, are
designed for the exploration stage. Also, given the substantial degree of context sensitivity in the
upscaling of smart city pilot projects, further empirical research in different geographic contexts
beyond Amsterdam would further enhance understanding of upscaling processes in smart city pilot
projects.

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 Appendix A / Table 6.3: Overview of interviews on smart cities and pilot projects

Collaboration in Organization Participant role Date and time

Amsterdam Smart Semi-structured; 13 April

Amsterdam Smart City Communication Manager
City Network 2015; 60 minutes

Amsterdam Smart Semi-structured; 6 May 2015;

Amsterdam Smart City Project Manager Internationalization
City Network 50 minutes
Amsterdam Smart Semi-structured; 11 May
Amsterdam Smart City Project Manager Energy Innovation
City Network 2015; 45 minutes
Amsterdam Smart Semi-structured; 29 April
Amsterdam Smart City Business Development Manager
City Network 2015; 80 minutes
Amsterdam Smart Semi-structured; 16 June
Accenture Smart City and Sustainability Services Expert
City Pilot Project 2015; 45 minutes
Amsterdam Smart Semi-structured; 21 May
Accenture Smart City and Energy Market Expert
City Pilot Project 2015; 50 minutes
Amsterdam Smart Semi-structured; 19 may
Alliander Smart City Expert
City Pilot Project 2015; 60 minutes
Amsterdam Smart Semi-structured; 1 July 2015;
Cisco Smart City and Sustainability Services Expert
City Pilot Project 90 minutes

Amsterdam Smart City of Amsterdam Semi-structured; 7 April 2015;

Smart City Expert / Programme Manager
City Pilot Project municipality 45 minutes

Amsterdam Smart Semi-structured; 8 April 2015;

KPN Smart City Expert
City Pilot Project 90 minutes
Amsterdam Smart Semi-structured; 21 May
Liander Energy Expert / Programme manager
City Pilot Project 2015; 50 minutes
Amsterdam Smart Smart City Expert / Consultant Energy, Semi-structured; 19 May
Waternet
City Pilot Project Resources & Water 2015; 75 minutes

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 CHAPTER 7: CONCLUSIONS

This dissertation focused on exploring business strategies in response to the diffusion of technologies
for sustainable energy production and consumption. This chapter presents the conclusions,
contributions, implications, and limitations. Section 7.1 starts with an overview of the key
contributions for each study, as well as cross-study linkages which emerge from the dissertation as a
whole related to the sub-questions introduced in chapter 1. Several research findings have
implications for the broader debate on energy and sustainability, and the role of business as an actor
in the transition towards a more sustainable energy future. Section 7.2 discusses how the
organizational-level perspectives adopted in each chapter contribute to creating more insight into the
role of actors in the energy transition. The final section, 7.3, reflects on the relevance of conducting
further phenomenon-driven research on sustainability-related ‘grand challenges’ (Buckley et al., 2017;
Doh et al., 2015) in the international business and management literature, and identifies limitations
and opportunities for future research.

7.1 Contributions of this dissertation in relation to research questions

Each chapter in the dissertation contributed to the research question presented in chapter 1, and shed
light on the strategic responses of business to the diffusion of technologies for sustainable energy
production and consumption. The research question was divided into two sub-questions. The first sub-
question examined the strategic responses of different types of multinational enterprises (MNEs) to
the diffusion of technologies for sustainable energy production and consumption. Chapter 2 identified
how firms in the information and communication technology (ICT) industry strategically approach the
market for ‘smart city’ technologies, and explored the potential for these firms to build firm-specific
advantages (FSAs) from their smart city engagements in multiple urban contexts globally. Chapter 3
researched regionalization strategies of European Union (EU) electric utilities in conventional power
generation technologies and renewable energy technologies (RETs), and showed how their strategies
are influenced by market liberalization and imperfect harmonization in the (supra-)national
institutional environment. Chapter 4 provided insight into the strategies of firms in the oil industry in
developing and commercializing a single RET, solar photovoltaic (PV) technology, taking internal
resources and capabilities as well as external industry dynamics into account.
The second sub-question investigated how business addresses challenges related to the
scalability, affordability, and accessibility of sustainable energy technologies. Chapters 5 and 6 each
explored how market-based and business-led approaches can enhance the economic viability and
potential for upscaling of sustainable energy solutions, which have historically relied on donor-funded

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 and subsidized activities, in respectively rural and urban settings. In chapter 5, the research focused
on business models for off-grid RET-based solutions to establish access to energy in rural areas in
developing countries without adequate access to the national electricity grid. Chapter 6 took a
management perspective to explore which factors affect the potential for urban energy efficiency
solutions to be scaled up beyond pilot projects, and thus create an environmental and social impact
beyond local contexts. Table 7.1 provides an overview of the main foci and contributions of the
empirical chapters in the dissertation.

Chapter 2 3 4 5 6

Research Sub- How do MNEs strategically address the diffusion of renewable energy How does business address challenges related to
Question technologies for energy production, and energy efficiency technologies for the scalability, affordability, and accessibility of
energy consumption? solutions for sustainable energy production and
consumption?

Organizations Multinational Multinational Multinational Entrepreneurial firms Multinational

Examined Enterprises Enterprises Enterprises Enterprises;
Entrepreneurial firms

Central themes International International business; Strategic Sustainable Sustainable

from the literature business; global cities regional institutional management; development; access development;
and location coherence; FSAs and resource-based to energy financing upscaling from pilot
strategies; FSAs and liability of foreignness; perspective; and delivery models; projects; management
liability of foreignness; home-country effects sustainability-oriented business model perspective on scaling
local contexts innovation perspective on value dimensions
creation

Geographic setting International; global International; Europe International; Europe National; countries in Sub-national; city of
cities South East Asia Amsterdam

Technology focus Energy consumption; Energy production; Energy production; Energy production; Energy consumption;
smart city grid-connected RETs grid-connected RETs decentralized off-grid smart city
technologies RETs technologies

Main industry or ICT Electricity Oil Rural Urban

context
Contribution Exploration of Exploration of firm Conceptual and Identification of Identification of
international business internationalization empirical exploration business model manifestations of
strategies and liability and liability of of investments in the components of upscaling processes,
of foreignness related foreignness related to development and market-based models and economic,
to locating firm intra-regional commercialization of for access to energy in regulatory, and
activities in global institutional RETs; case studies on developing countries; technological
cities; case studies on coherence; case the strategic empirical illustration dimensions which
integrating and studies on the investments in solar with case studies on affect upscaling
leveraging FSAs from international PV technology of local companies in processes; empirical
embeddedness in expansion patterns of incumbent firms multiple developing illustration with case
multiple urban EU electric utilities in and emerging studies on local smart
contexts fossil fuel-based and countries city pilot projects
RET-based power
generation portfolio

Table 7.1: Overview of the chapters in the dissertation

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The contributions of each chapter in relation to the sub-questions is discussed in more detail below.

Sub-question A: How do MNEs strategically address the diffusion of renewable energy technologies
for energy production and of energy efficiency technologies for energy consumption?

Chapter 2 focused on the strategic approaches of MNEs to the international spread of smart city
technologies, in response to addressing energy consumption in cities and urban areas. Since city
governments of capital cities and large urban areas have started to actively address persistent
sustainability issues related to energy and climate change (Bulkeley, 2010; Hodson and Marvin, 2009),
international ICT firms have reported on investments in technological innovations which facilitate the
creation of smart cities (Macomber, 2013; Paroutis et al., 2014). Embedded in the emergence of smart
cities as an increasingly ubiquitous global phenomenon, this chapter examined how these firms have
leveraged their international network of subsidiaries to build a strategic presence as smart city
technology suppliers in a large number of cities. It showed that locating firm activities in centres of
economic agglomeration (Beugelsdijk et al., 2010; Beugelsdijk and Mudambi, 2013), particularly
‘global cities’ (Goerzen et al., 2013; Sassen, 2000; 2005), reduces the liability of foreignness
experienced by firms in host environments (Mehlsen and Wernicke, 2016), and facilitates MNEs in the
development and exploitation of firm-specific advantages (FSAs) in and across different locations in
the MNE network (Rugman and Verbeke, 2007; 2008c). The presence of the three ICT MNEs in all cities
of the Globalization and Word Cities (GaWC) inventory (Beaverstock et al., 1999; 2000) identified as
prime cities for the spread of smart city technologies, seems to reflect the fact that these firms are
well-positioned to leverage resources and capabilities developed from their smart city engagements
on a global scale.
In the international diffusion of smart city technologies, the empirical analysis highlighted a
dynamic interplay between leveraging location-bound and non-location-bound FSAs in the strategic
approaches of ICT MNEs to the creation of smart cities. On the one hand, firms can leverage non-
location-bound FSAs developed from their smart city engagements in multiple heterogeneous urban
contexts, which are embedded in their specialized resources and capabilities. These FSAs can be
deployed beyond the specific domain in which they have been developed (Rugman and Verbeke,
2007), and can thus provide a potential to create competitive advantages in this market. Firm-specific
programmes for smart cities, including IBM Smarter Cities and Cisco Smart+Connected Communities,
have facilitated them in building specialized resources and capabilities in the development and
marketing of smart city ‘solutions’, which are transferrable to other subsidiaries in the MNE network.
Interviews with the focal MNEs showed that both formal and informal mechanisms for intra-MNE

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knowledge sharing are key in this respect, as this facilitates the inflow and outflow of knowledge
between subsidiaries in different urban contexts in the MNE’s network (McCann and Mudambi, 2005;
Mudambi, 2002). On the other hand, firms can build on location-bound FSAs within each urban
contexts in which they are embedded, which are not transferrable throughout the MNE network. This
may include FSAs from ownership over physical resources and assets, from existing relationships with
key public and private stakeholders, or from in-depth knowledge of specific urban systems and
infrastructures. Such FSAs are location-bound and difficult to transfer beyond the local context in
which they are embedded, due to their high degree of context-specificity, given the unique contextual
characteristics of each urban environment in terms of economic, social, regulatory, and technological
factors. Yet, such location-bound FSAs can enable firms to be responsive to local sustainability
requirements, and make them adaptive to the distinct characteristics of each urban contexts in which
the firm has activities. Related to sub-question A, this chapter thus highlights that MNEs strategically
address the diffusion of technologies for urban energy consumption, by exploiting resources and
capabilities which are developed through their smart city engagements in a large number of cities and
urban areas globally.
In relation to energy production, chapter 3 studied the geography of MNE internationalization
patterns and the influence of the (supra-)national institutional environment on this process, focused
specifically on electric utilities in the EU. The European electricity market has been fundamentally
reshaped by a series of EU directives adopted since 1996, which has driven a process of market
liberalization, aimed at establishing an European internal electricity market (Meeus et al., 2005). This
changing context has influenced the profitability, growth, and survival of electric utilities, as well as
firm-specific investments in technologies for power generation. Given that the uptake of RETs is an
important driver of energy sector transformation (Holdren, 2006; Jacobsson and Bergek, 2004;
Jacobsson and Johnson, 2000), the investments in renewable energy of EU electric utilities are
instrumental in meeting the EU’s sustainable energy targets for 2020. The chapter builds on the body
of literature on regionalization (cf. Rugman and Verbeke, 2004; 2005), which focuses on how economic
and political integration in the triad regions (Li and Guisinger, 1992; Ohmae, 1985) influence the
international growth strategies of MNEs. The analysis in chapter 3 identified how increased coherence
in the European institutional environment as well as country-specific public policies for RETs have
shape firm-specific energy investments and internationalization strategies after the market
liberalization was initiated.
Accordingly, chapter 3 shed light on the industry-specific internationalization patterns of
these electric utilities, following their transition from state-owned to privatized companies. The
findings confirm the influence of the regional (i.e. European) institutional environment on firm

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strategies, although differences were identified for their installed capacities in RETs compared to fossil
fuel-based technologies. In their corporate strategies and installed power generation capacity in fossil
fuel-based technologies, all electric utilities follow a region-oriented internationalization pattern in
their investment decisions, with strong home-country presence in most cases. This confirms that firms’
investments are largely home-region oriented rather than global (Rugman and Verbeke, 2004), and
resonates with the underlying assumption that inward and outward investments in the home region
are associated with a lower degree of liability of foreignness than inter-regional investments (Rugman
and Verbeke, 2004; 2005; 2007; 2008c; Kudina, 2012). Hence, the home-region profiles of firms
indicates that they experience less liability of foreignness within the region, influenced by increased
regional policy coherence in the European electricity market. Yet, only one of the seven focal firms
(E.ON) was present in all EU sub-regions, with most firms focusing their investments outside their
home countries on markets within their sub-regions. This reflects the existence of barriers to intra-
regional international expansion (Asmussen, 2009), and shows that firms internationalize to countries
which are both institutionally and geographically closest to their home market. While future
investments may push firms towards presence in multiple or all EU sub-regions, it highlights that
(supra-)national institutional integration at the regional level shapes firm-specific investment
decisions and internationalization patterns.
Furthermore, the influence of home-country public policy on MNE strategies emerged from
the analysis of the seven electric utilities. As energy market liberalization and policy harmonization is
incomplete in several EU countries (Joscow, 2008), differences between countries still exist. Home-
country effects can shape the geographic profile of sustainable energy investments. Firms show a clear
pattern of increasing internationalization outside their home countries, with a home-region
orientation for traditional power generation activities. However, their investments in RETs show a
more widely dispersed international profile, with a multiple-region presence for some firms. Hence,
the analysis of these utilities and their RET-oriented business units and subsidiaries implies that
institutional factors play an important role in their investments. Home-market effects strongly
influence this process. Favourable RET-oriented policy incentives and regulatory frameworks can
support firms to build up unique FSAs in their home market. This can drive their international
expansion by leveraging non location-bound FSAs in RETs, creating a greater geographic distribution
of their power generation portfolio. In this respect, it highlights the effect of home-country public
policy on inward and outward investment decisions of these MNEs. A noteworthy example is the
‘green growth plans’ in the United States (US), which included incentives for renewable energy
investments, and allowed several European electric utilities to leverage their FSAs in RETs and build
their wind energy portfolio outside their home region, and in the US. This resulted in bi-regional and

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host-region orientations for the installed RET capacity of three firms, compared to the regional
orientation in their conventional power generation capacity.
Chapter 4 also focused on European MNEs in the energy industry and their investments in
RETs, building on a resource-based perspective of the firm (Wernerfelt, 1984; 1995; Peteraf, 1993;
Barney, 2001a; 2001b), focused specifically on MNEs with established positions in the oil industry. It
explored strategies of incumbent firms in sustainability-oriented technology innovation, and provided
a comparative analysis of the strategic approaches of firms in their solar PV investments. Related to
the diffusion of technologies for sustainable energy production, the chapter contributed to a better
understanding of how internal firm-specific factors can shape investment decisions in technological
innovations which are perceived as potentially disruptive to existing resources and capabilities. The
analysis examined how oil firms have built resources and capabilities over decades in supplying fossil
fuels, creating path dependencies which shape their innovation strategies and firm-specific
investments in solar PV. Specifically, the analysis shows that non-complementarity between existing
resources and capabilities of oil firms, and the technology-specific characteristics of solar PV, shapes
the way in which these firms strategically develop and commercialize this technology.
In technology development, this non-complementarity steered firms towards acquisitions of
specialized solar PV firms to obtain technology-specific resources and capabilities, or build inter-
organizational collaborations within specialized solar energy firms through joint ventures. Given that
oil firms could not build on historical research and development (R&D) investments in solar PV, they
were inherently unable to leverage possible complementarities between existing firm-specific
resources and capabilities in oil and in solar PV. This lack of intra-firm complementarities was reflected
in the strategic decisions of all firms to establish their RET activities outside the organizational
structure of their fossil fuel supply chains (Bower and Christensen, 1995). Shell and BP established
isolated divisions for their RET activities (respectively Shell Renewables and BP Alternative Energy),
while Total opted for shared ownership of multiple subsidiary companies. Hence, this shows how a
lack of alignment between existing firm-specific resources and capabilities affected their decision-
making to invest in non-complementary and disruptive innovations. The study also illustrates why
incumbent firms mostly invest in incremental innovation to optimize performance of existing
technologies, rather than focusing substantial efforts on disruptive and breakthrough innovations
(Baumol, 2002).
As a consequence of non-complementarity with the existing resources and capabilities of
firms, and of the establishment of solar PV activities in rather independent divisions outside their
existing supply chains, the analysis showed that commercialization of solar PV technology occurred
only in smaller niche markets. The decision to locate the initial market for introducing a disruptive

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technology outside existing mainstream markets fits with incumbents’ strategies for technologies
which are perceived as strategically important yet non-complementary to existing activities (Bower
and Christensen, 1995). This also highlights a crucial difference between oil firms and electric utilities
related to investments in RETs: the interrelatedness between the degree of complementarity between
existing resources and capabilities and technology-specific characteristics. Electric utilities are able to
integrate RETs, including energy generated by solar PV as well as on- and off-shore wind, into their
existing upstream power generation portfolio, and can rely on their existing downstream electricity
distribution infrastructure to deliver electricity to end-consumers. Contrary to oil firms, electric
utilities therefore have a high degree of complementarity between existing resources and capabilities,
which influences their strategic decision-making process for RET investments. These inter-industry
differences between complementarity of RETs to the supply chains of oil firms and electric utilities
also exemplify how carbon lock-in (Erickson et al., 2015; Unruh, 2000) can influence the diffusion of
technologies for sustainable energy production.
Hence, chapter 4 highlighted the influence of internal firm-specific factors on strategic
decision-making in RET investments. Given that these incumbent firms in the oil industry lacked
resources and capabilities for technology development and commercialization, their initial
investments eventually resulted in divestures, rather than in diversification of their power generation
portfolio. As chapter 4 highlighted, non-complementarity between internal firm-specific factors and
technology-specific characteristics of solar PV led subsidiaries Shell Renewables and BP Alternative
Energy to commercialize the technology to niche rather than mainstream markets. Therefore, these
technology-specific investments failed to have a substantial impact on a sustainability-oriented
diversification of the power generation portfolios of these firms. Related to the contribution of MNEs
to the diffusion of technologies for sustainable energy production, the resource-based view of the firm
therefore adds an internal perspective on the strategies of MNEs. This complements the contributions
of chapter 3 on the influence of the (supra-)national institutional environment in shaping MNE
internationalization patterns, and their ability to build FSAs in RETs from home-country public policies.
Considering the first sub-question, chapters 2, 3, and 4 therefore illustrated how internal and external
factors influence the strategic responses of MNEs to the diffusion of technologies for sustainable
energy production and consumption in multiple industries (electricity, oil, and ICT).

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Sub-question B: How does business address challenges related to the scalability, affordability, and
accessibility of solutions for sustainable energy production and consumption?

In exploring business strategies in sustainable energy, two chapters in the dissertation contributed to
insight into market-based and business-led approaches to enhance the scalability, affordability, and
accessibility of sustainable energy technologies. Chapter 5 explored how local entrepreneurial small-
and medium-sized enterprises (SMEs) develop innovative business models for RET-based access to
energy solutions in developing countries. Such market-based approaches are pivotal for sustainable
development, given that many technologies intended for implementation in developing countries fail
to achieve commercial viability, or are only distributed through donor-funded initiatives of non-
governmental organizations (Chesbrough et al., 2006). While this market may not be of strategic
importance to MNEs or even larger companies operating at a national scale, the (local) private sector
is central for long-term market development and for helping address sustainable energy issues.
Taking the perspective of the business model developed by Morris et al. (2005), chapter 5
showed various organizational, financial, regulatory, and technological challenges involved in
establishing access to energy in developing countries. It assesses the degree to which entrepreneurial
firms are able to build scalable business models to enhance the affordability and accessibility of
sustainable energy for customers in these markets. Earlier studies on off-grid delivery and financing
models (ARE, 2008; Nygaard, 2009; Umree and Harris, 2006; Zerriffi, 2011) identified a number of
different configurations, ranging from fully subsidized models by international non-governmental
organizations (e.g. the World Bank and United Nations), to wholly non-subsidized market-based sales
models, with mixed methods based on public-private collaborations in between. The analysis of the
four companies (Kamworks, Sunlabob, Husk Power Systems, and Grameen Shakti) in this chapter
revealed the complexities of building commercially viable business models, especially fully commercial
and non-subsidized models. For the majority of firms, this resulted in a mixed model of both self-
sustaining commercial activities for business-to-business markets and middle-class consumers,
combined with donor-funded activities oriented at consumers with a limited ability to pay. Their
offerings included hybrid and fully RET-based energy solutions for different consumer groups
(segmented based on spendable income and energy needs), ranging from individual-level to village-
level products and services. In addition to selling products and services, their activities include support
activities such as installation, maintenance and repair, and on-site training. Knowledge building and
private sector development were identified as key components to achieve sustainable long-term
market growth and facilitate the creation of a local infrastructure for RET-based off-grid solutions. This
stimulates long-term accessibility and affordability of solutions for access to energy in local contexts.

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Financing issues were a prevalent barrier in establishing access to energy for customers of virtually all
income groups. In order to stimulate the affordability and accessibility of these energy solutions,
several firms developed alternative financing schemes to overcome the high capital costs of upfront
investments. These financing schemes were primarily oriented at consumers at the bottom/base of
the pyramid (BOP), said to consist of 4 billion people globally with an annual per capita income below
US$1.500 (Prahalad and Hart, 2002), and have historically relied on donor-funded projects to gain
access to energy. Two companies (Kamworks and Sunlabob) developed rental schemes in
collaboration with micro-finance institutions and donor organizations. Another company, Grameen
Shakti, offered micro-finance ‘soft credit’ schemes in collaboration with the Grameen Bank, and was
the only company, of the four studied, which explicitly stated not to receive direct subsidies. This
company stated not to focus on making a profit in this market, possibly related to its affiliation with
the broader Grameen family of organizations that has the provision of micro-credit as cornerstone of
the overall business model. The case studies in chapter 5 illustrate that financial support from donor
organizations should primarily fund projects for access to energy carried out by local companies, and
include mechanisms which stimulate sustainable and long-term market development. In addition,
local companies can collaboratively develop financing schemes with international non-governmental
organizations, corporate philanthropy programmes, or venture capital from socially-oriented
investors, to enhance the affordability (and thereby accessibility) of these solutions for a larger group
of consumers.
Chapter 5 thus showed that local companies and business-led approaches have an important
role in longer-term solutions for sustainable development in order to establish affordable and
accessible access to energy solutions. (Inter)national regulations and public policy frameworks for
access to energy should therefore be inclusive to local companies and market development. Stand-
alone donor-funded projects and subsidized programmes can have a distorting effect on local markets
conditions, especially when the role of the private sector is insufficiently taken into account. Purely
charitable distribution programmes by donor organizations, without the inclusion of market
mechanisms, fail to achieve scalable solutions beyond a donor-funded phase, limiting their impact on
longer-term environmental sustainability and social development. The adaptability of the focal
companies to local conditions, and their in-depth knowledge of market conditions and end consumers
stemming from their local embeddedness, is a major strength in comparison to more generic one-size-
fits-all solutions. While clear challenges remain in terms of the commercial viability and scalability of
existing business models, it allows these local companies to develop context-specific solutions for
access to energy though a bottom-up, market-oriented approach.

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Hence, the potential for scaling up sustainable energy solutions beyond a donor-funded phase to
achieve broader diffusion and create a wider environmental and social impact (Vilajosana et al., 2013),
is a key challenge for business. Chapter 6 also focused on similar challenges regarding economic
viability, and the complexities associated with scalability, but this time in an urban, developed context.
It explored different trajectories for scaling up urban energy solutions developed in multi-stakeholder
pilot projects at the local level, and identified which dimensions and conditions affect this process.
Similar to chapter 5, it builds on perspectives on upscaling from developing country contexts (Cooley
and Kohl, 2005; Hartmann and Linn, 2008; Uvin, 1995; World Bank, 2005), and defines three
manifestations of upscaling, each with their own dynamics and context-sensitivity. The first type of
upscaling process, ‘roll-out’, occurs when one of the pilot project partners brings a newly developed
technological solution (product/service) to the market, or applies learning outcomes from the pilot
project in their own organization. The second form, ‘expansion’, emerges when a pilot project is not
closed or dissolved, but expanded beyond the donor-funded phase, either by adding partners or
customers to the project, or by enlarging the geographic area in which it operates. The third form,
‘replication’, is the most complex, and transpires when a sustainable energy solution developed in the
pilot project is replicated (exactly or by proxy) in another geographic or organizational context, by
either the original pilot partners or other organizations. Related to existing studies, this classification
presented in chapter 6 contributes to understanding how scaling trajectories emerge from local
contexts.
From a business perspective, several factors were discussed which affect (i.e. stimulate or
hinder) the potential for scaling up solutions beyond a donor-funded pilot project. First, the scaling
potential of sustainable energy solutions developed in pilot projects is higher when the prospect of
economies-of-scale can bring lower unit costs and/or higher profits (O’Sullivan et al., 2003), and
project partners have an incentive to capture them. Public and non-profit organizations lack market-
based incentives to scale up solutions, thereby insufficiently taking into account how scaling beyond
donor-funding can occur, but rather move ‘from one project to another’ (Hartmann and Linn, 2008).
Hence, similar to findings for market-based developed in access to energy in chapter 5, business (from
MNEs to SMEs) have an important role in scaling up solutions beyond local contexts. Second, upscaling
requires adequate management of the transition from an exploration-oriented, donor-funded pilot
phase, to an exploitation phase that has commercial viability beyond subsidization. The availability of
resources and capabilities to engage in both exploration and exploitation activities is therefore
relevant to the potential for upscaling. From the perspective of organizational ambidexterity (March,
1991), it is important for firms to achieve a balanced approach between both exploration and
exploitation. Given that R&D activities (i.e. exploration in pilot projects) require different resources

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and capabilities than exploitation of a solution to the market (i.e. upscaling beyond pilot projects),
effective management of ambidexterity therefore influences the potential for upscaling.
In addition, a third factor affecting the potential for scaling up technological solutions beyond
pilot projects is effective inter- and intra-organizational knowledge transfer (Du Plessis, 2007; Tamer
Cavusgil et al., 2003), including the transfer of tacit knowledge (Foos et al., 2006; Seidler-De Alwis and
Hartmann, 2008). Firms, especially MNEs, often have effective knowledge transfer mechanisms in
place, which allows them to capture the benefits from local presence in multiple cities, and therefore
enable them to scale up locally developed solutions to a larger number of locations (Paroutis et al.,
2014). This resonates with contributions at the global level presented in chapter 2, which identified
how MNEs in this market can build FSAs from their local embeddedness in many cities, and leverage
these FSAs through their global network of subsidiaries to build competitive advantages via intra-MNE
knowledge transfer. This is reflected in the case of Accenture’s involvement in the Energy Atlas pilot
project in Amsterdam, and their ability to leverage lessons learned at the local level to consulting
activities in other cities. The issues related to scaling as specified in chapter 6, illustrate why MNEs
tend to be more successful in scaling up solutions than smaller, local companies. In sum, this is related
to the existence of firm-specific resources and capabilities for both exploration and exploitation,
opportunities to create economies-of-scale, and mechanisms for intra-organizational knowledge
sharing.
Considering the second sub-question, this dissertation showed that market-based approaches
to sustainable development can enhance the scalability, affordability, and accessibility of solutions for
sustainable energy production and consumption. The scaling trajectories described in chapter 6
related to scaling up urban energy efficiency solutions from smart city pilot projects can also be
applied to scaling up of the RET-based access to energy solutions in rural areas discussed in chapter 5.
Given that both contexts have historically relied on donor-funded activities of public actors, which
have often failed to reach commercial viability (Chesbrough et al., 2006), it can be argued that the
private sector is instrumental in scaling up sustainable energy solutions. The empirical case studies in
chapter 5 and 6 showed how business-led approaches, both by MNEs and SMEs, have an important
role in achieving a wider social and environmental impact beyond local contexts. While the context-
specificity of the case studies limits the generalizability of the findings to a wider range of urban and
rural contexts (as discussed in more detail below), they indicate that market-based approaches may
have the potential to impact stimulate long-term sustainable development.
Overall, the chapters in the dissertation have explored business strategies in response to
sustainable energy production and consumption, rooted in multiple theoretical perspectives from the
business and management literature. Chapters 3, 4, and 5 focused on business strategies in the

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diffusion of RETs for energy production, and chapters 2 and 6 examined smart city technologies for
more efficient energy consumption, as visualized in table 7.2. The next section elaborates on how the
contributions related to both sub-questions are interrelated with transition processes in society, and
specify how these perspectives can inform the broader debate on business and sustainable energy.

Research sub-question

Technology related to Business strategies for the diffusion Business approaches to enhance the
of sustainable energy technologies scalability, affordability, and accessibility
of sustainable energy solutions

Production Chapters 3 and 4 Chapter 5

Consumption Chapter 2 Chapter 6

Table 7.2: Overview of the chapters in relation to sustainable energy production and consumption

7.2 Broader implications for the debate on business and sustainability energy

Several contributions discussed in section 7.1 can shed light on the role of firms, particularly MNEs, in
the transition towards sustainable energy production and consumption in society, and thus provide
an actor-centric perspective on sustainability transitions (Farla et al., 2012; Markard et al., 2012). This
complements theoretical conceptualizations of transition processes in socio-technical systems, most
notably the Multi-Level Perspective (Geels, 2002; 2004) and Triple Embeddedness Framework (Geels,
2014), as well as industry-specific insights related to the wider diffusion of novel technologies for
energy sector transformation (Jacobsson and Bergek, 2004; Jacobsson and Johnson, 2000). The
management perspective on business strategies in sustainable energy identified that multiple factors,
including firm-specific resources and capabilities for both exploration and exploitation activities,
opportunities to create economies-of-scale to reduce unit costs, and mechanisms for effective intra-
organizational knowledge sharing, contribute to the ability of MNEs to develop and market sustainable
energy technologies. In addition, it showed how the development of market-based business models
can enhance the scalability, affordability, and accessibility of solutions for sustainable energy
production and consumption, and thereby contribute to their diffusion in society. Given that actors
are important in understanding the diffusion of technological innovations as part of transition

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processes (Geels, 2005a), this adds a firm-centric perspective to existing studies on different
trajectories and pathways of transformative change in socio-technical systems (Geels, 2005b; Geels
and Schot, 2007; Raven, 2007; Smith et al., 2005).
In the same line of thought, central to the Multi-Level Perspective are niche environments,
which can act as ‘incubation rooms’ or ‘protected spaces’ for technological innovations and prepare
them for broader diffusion into the energy system (Geels, 2005a; 2004; Kemp et al., 1998; Smith and
Raven, 2012). Pilot projects can provide opportunities for technology experimentation and early
adoption in this realm, and facilitate the market formation of radical, potentially disruptive
innovations (Carvalho, 2014). Firms can play an important role in the breakthrough of novel
technologies for sustainable energy production and consumption beyond niche environments. Large
MNEs have competitive advantages over smaller, more locally oriented companies in scaling up novel
technologies in this respect, given that MNEs can integrate and leverage FSAs in sustainable energy
from multiple contexts through their international network of subsidiaries (Meyer et al., 2011). MNEs
with established industry positions have internalized key factors to scale up solutions, including
complementary resources for both exploration and exploitation as well as mechanisms for intra-MNE
knowledge sharing, and can benefit from the potential to create economies of scale. As chapters 2
and 6 showed, the international presence of ICT firms in all cities in the Globalization and World City
(GaWC) inventory allows them to scale up solutions based on smart city technologies in an efficient
manner, enabled by the decreased liability of foreignness that firms experience by locating their
activities in global cities (Goerzen et al., 2013; Mehlsen and Wernicke, 2016). This reflects that ICT
firms (e.g. firms from non-fossil fuel industries) can potentially have a positive impact on
transformative change in energy consumption, by exploiting resources and capabilities in developing
and marketing ICT-based network and infrastructure solutions (Erlinghagen and Markard 2012; Geels,
2018).
In addition, the strategic management perspective on MNEs in sustainability transitions
contributes to understanding how internal factors influence firm-specific investments in radical
technological innovations. Geels (2014) identifies that incumbent firms can impact a sustainability-
oriented transition process by developing and marketing technological innovations, but can be
reluctant to do so because of sunk investments in existing fossil fuel-based technologies (Unruh,
2000), and the risk of potentially disrupting existing capabilities (Tushman and Anderson, 1986). The
longitudinal analysis of solar PV investments of oil firms presented in chapter 4 illustrates how
strategic decisions of MNEs to develop and commercialize RETs are shaped by internal resources and
capabilities. In particular, it shows how (non-)complementarity between a firm’s existing resources
and capabilities, and the distinctive characteristics of a novel technological, influences the strategic

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approach of the firm to developing and commercializing it. The oil firms in the sample relied on
external acquisitions rather than existing internal R&D capabilities in technology development, and
commercialized solar PV to multiple niche markets outside their existing value chains. This reflects the
propensity of incumbent firms to focus on incremental, competence-sustaining innovations rather
than radical, competence-destroying innovations in technological innovation (Bower and Christensen,
1995; Hill and Rothaermel, 2003; Tripsas, 1997; Tushman and Anderson, 1986). While the diffusion of
RETs is only one of multiple factors which influences energy sector transformation (Geels, 2018;
Wilson and Tyfield, 2018), it illustrates how incumbent firms can contribute to path-dependency and
lock-in experienced by regimes in socio-technical systems (Erickson et al., 2015; Unruh, 2000), and
explains why novel technologies for sustainable energy production and consumption can be hindered
from widespread diffusion by firms with established positions in the existing energy system (Geels,
2002; 2004; 2005b).
Furthermore, the international business perspective has shown how external factors,
specifically the regional (i.e. European) and national (i.e. home country) institutional environment,
shape the investments of MNEs in fossil fuel-based technologies and RETs as part of their
internationalization strategies. Chapter 3 identified how the changing institutional environment in the
European electricity industry is intertwined with the internationalization patterns of electric utilities
outside their home market. At the regional level, it showed that cross-border harmonization in the
regional institutional environment decreases the liability of foreignness experienced by MNEs, and
thereby shapes their intra-regional growth strategies (Rugman and Verbeke, 2004; 2005). Institutional
differences between countries continue to exist, given that market liberalization is incomplete in
multiple EU countries (Joscow, 2008). The analysis of internationalization patterns of EU electric
utilities shows how this provides an opportunity for firms to internationalize to host countries which
have seen a faster pace of market liberalization, while also profiting from a protected home market.
Similarly, the influence of differences in home-country public policies on firm strategies is also
reflected in their RET investments. Favourable public policies on RETs have allowed some EU electric
utilities to increase their installed renewable energy capacity in their home market, and enabled them
to create FSAs which can be leveraged outside the home market (Rugman and Verbeke, 2007). A
noteworthy illustration in this respect is Iberdrola Renovables, which was able to increase their
installed wind energy capacity based on public policies in its home market (with a total of 13.690 MW
installed renewable energy capacity, compared to 6.102 MW - 1.896 MW for the other firms in the
same year). This illustrates how the international growth patterns and firm-specific resources and
capabilities in RETs can be shaped by external dynamics in the (supra-)national institutional
environment. In this respect, both the strategic management and international business perspective

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shed light on internal and external factors which influence MNE strategies in sustainable energy, and
thereby contribute to understanding how firm strategies can influence transition processes in society
(Geels, 2014).

7.3 Limitations and opportunities for future research

Limitations
Several limitations should be mentioned related to the reliability, generalizability, and validity of the
research findings, as will be discussed below, divided into three clusters. More generally, the fact that
the dissertation consists of separate studies on different themes relevant to business and sustainable
energy, with four of them published as articles in refereed journals over a five-year period, has pros
and cons. While they have been judged for their suitability, quality and contributions by external
experts, the studies were geared to a specific audience and, in two of the four cases, for special issues.
This means that the framing is different and that the chapters/articles are embedded in different
debates, hampering the coherence of the overall dissertation at points. Especially in the case of
Chapter 3, the fact that it was submitted to and published in a special issue of British Journal of
Management on (generic) strategies for firm globalization and regionalization has affected its writing
and positioning, with (renewable) energy not being central. To partly redress this drawback from the
perspective of the dissertation, Chapter 2 starts with the energy transition and the emergence of
smart city solutions as technological innovations, and embeds this in the generic debate on
globalization/regionalization/localization.
Perhaps more importantly, the article-based set-up covering a longer period overall also
means that some of it is time-based, regarding the empirics, a common feature, but particularly
concerning the theoretical debates and literature used. This is notable, for example, in the case of
Chapter 5, which covers business models, an area where many advances have been made, both in
terms of the generic literature and specific for sustainability (e.g. see Bittencourt Marconatto et al.,
2016; Bohnsack et al., 2014; Gabriel and Kirkwood, 2016; Matos and Silvestre, 2013; Palomares-
Aguirre et al., 2017). Additionally, the technological advancement in multiple sources of renewable
energy, especially solar PV (REN21, 2017), has potentially affected the technology-specific
investments of firms in RETs for power generation in recent years. For chapter 4, which specifically
addressed solar PV, as well as the other chapters which focused on RETs for power generation
(chapters 3 and 5, see table 7.2 for an overview), this could have influenced technology-specific
investments of firms in RETs in recent years, after the publication of the articles.
Concerning the three sets of more specific limitations, first, the focus on qualitative research
through a multiple case study analysis in each chapter affects the generalizability of findings, albeit to
different degrees and in different ways. Chapters 2, 3, and 4 explored whether and how business

159
contributes to the diffusion of technologies for more sustainable energy production and consumption.
The focal firms in the empirical section represent a sample of leading firms in each industry,
respectively ICT (chapter 2), electric utilities (chapter 3), and oil (chapter 4). Given the established
positions of these firms in their respective industries, findings for their strategies and investments in
sustainable energy technologies can be considered to be rather generalizable to other comparable
MNEs in the specific industry context. In chapter 3, limitations to generalizability arise from the focus
on one specific region (EU) and type of firm (electric utilities). Developments in the (supra-)national
institutional environment, most notably market liberalization and deregulation, shape the strategies
of the focal firms in the empirical section, making findings both industry-specific as well as region-
specific. Hence, they can be considered to be generalizable to other firms within the same context,
but not necessarily to other industries or triad regions. A similar observation can be made for chapter
4. The focus on exploring how oil firms develop and commercialize solar PV technology make the
empirical research findings both industry-specific and technology-specific. While limiting the
generalizability of findings to firms in other industries and RETs with other characteristics, it does
provide an illustrative case that adds to existing literature on how firm resources and capabilities
shape their strategic investments in technology innovations which are radical and non-complementary
in nature. Hence, all chapters make contributions to existing literature, and provide illustrative cases
within specific industry contexts.
Similar observations apply to chapters 5 and 6. Both chapters focus on whether and how
business addresses challenges related to the scalability, affordability, and accessibility of sustainable
energy solutions. Given the lack of existing academic studies on this issue in the business and
management literature to date, case studies on specific urban and rural contexts were conducted in
the empirical sections of both studies. While a core strength of the multiple case design is the
opportunity to study a phenomenon in more detail in its real-life context (Yin, 2003), the dynamic
interaction between unit of analysis and the external environment in which it emerges limits the
generalizability of findings. The context-specific dimensions of the external environment in which the
research is conducted influence and shape the strategies of the focal organizations in the analysis. Yet,
both chapters present exemplary case studies to illustrate a phenomenon within a specific context:
how smaller, locally embedded SMEs aim to develop commercially viable business models for
sustainable energy technologies in developing countries in chapter 5, and how the process of scaling
solutions to urban energy efficiency beyond pilot projects unfolds in a specific city in chapter 6. Given
that both studies provide insight into a phenomenon, and unravel factors which influence the
scalability, affordability, and accessibility of sustainable energy solutions within each specific context,
the empirical work makes relevant contributions to existing research to date.

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Second, data problems concerning the lack of geographic reporting on key company figures including
revenues, assets, and number of employees limits the opportunities for making a more
comprehensive analysis of the geographic profile of firm activities and their degree of globalization-
regionalization-localization. In chapter 2, gathering data on the sub-national level presence of firms
with an eye to establishing the size and scope of their activities in specific cities based on exact figures
was impossible due to a lack of company reporting at that level of specificity. While the GaWC
inventory was introduced to determine whether the focal firms had local presence in specific cities
through either their corporate headquarters or subsidiaries, the scope and size of firm activities in
each city could not be determined because of a lack of data. While this allowed an assessment of the
sub-national presence at the local level for each focal firm, more detailed geographic reporting would
have enabled a more fine-grained analysis. Similarly, it was rather challenging to collect firm-level
regional data on the activities of electric utilities in chapter 3. While annual reports provided an
overview of home versus non-home country data for key company figures, and installed power
generation capacity for each firm, enabling a longitudinal analysis of internationalization over time,
collecting country-specific data for activities outside the home market proved to be rather challenging.
Although this did not hinder an analysis of the regionalization strategies of the focal firms, and even
allowed for the identification of sub-regions, the lack of geographic reporting of company figures
limited a more detailed analysis of firm internationalization patterns.
A third limitation is related to the validity of findings which are based on data from firm self-
representations. For chapters 2, 3, and 4, data was collected for the focal MNEs from firm
documentation, including annual reports, corporate social responsibility (CSR) reports, and issue-
specific publications related to activities in sustainable energy, including smart city technologies for
urban energy efficiency (chapter 2) and RETs for power generation (chapters 3 and 4). Similarly, for
chapters 5 and 6 documents were also collected from sources reflecting data based on self-
representations. These include web-based sources on the activities and RET-based offerings of SMEs
for decentralized energy (chapter 5), and on the solutions for urban energy efficiency developed in
smart city pilot projects (chapter 6). Hence, for all chapters, the inclusion of data based on firm self-
representations poses a potential threat for the validity of research findings, without a triangulation
of this data by incorporating other sources. To enhance validity, steps for additional data collection
were taken for each study through combining the documentation with semi-structured interviews
(chapters 2, 5, and 6), (which enable at least a check with firm representatives and sometimes external
experts), and with newspaper articles from reputable sources through a systematic search process in
the LexisNexis database (chapters 3 and 4).

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Future research
From the research findings presented in each chapter, a number of areas for future research can be
identified. Related to the geography of internationalization strategies and the debate on globalization-
regionalization-localization, it would be fruitful to conduct more research focused on the sub-national
level as it has received limited attention to date. Specifically, examining which mechanisms enable
MNEs to build FSAs from their presence in global cities would be interesting. The ability of ICT firms to
establish leading positions in the market for smart city technologies by leveraging and integrating FSAs
developed form a multitude of smart city engagements in heterogeneous urban contexts, provided
insight into one specific industry in this respect. Exploring how local contexts shape the strategies and
internationalization patterns of MNEs in other industries could enable a more fine-grained analysis of
how firms build competitive advantages from combining global presence with local embeddedness.
While the influence of the region on firm internationalization patterns has been well-
established across a broad range of industries, the interaction between MNE internationalization
strategies and (supra-)national institutional context should also receive further attention. Within the
EU electricity market, chapter 3 showed how home-country public policy and favourable regulation
for RETs shaped both inward and outward investment decisions of electric utilities. Hence, home
market effects stemming from imperfect harmonization of national institutional environments
allowed utilities to non-location-bound FSAs in RETs. This influenced the international patterns of
investments of electric utilities, and allowed RET-oriented subsidiaries (most notably Iberdrola
Renovables) to build a competitive advantage in sustainable energy. While recent studies have
focused on the influence of public policies on renewable energy investments (Polzin et al., 2015), and
provided insight into support policies for RETs in different countries (Dusonchet and Telaretti, 2015;
Kaplan, 2015; Nordensvärd and Urban, 2015), it would be interesting to explore how country-specific
public policies affect MNEs’ firm-specific investments in RETs. The influence of public policies on the
uptake of renewable energy as a source of power generation by EU electric utilities (chapter 3)
illustrates how the RET investments of MNEs can contribute to achieving the EU’s 20/20/20 targets
for sustainable energy.
Furthermore, the role of incumbent firms in sustainability-oriented technology innovation
should receive further attention. The conceptual model developed in chapter 4 explored how internal
resources and capabilities as well as external industry-level dynamics influence and shape firm
strategies in developing and commercializing RETs. Related to the non-complementarity between the
value chains of oil firms and the characteristics of solar PV, all firms primarily relied on external
acquisition for technology development rather than on internal resources and capabilities, and
commercialized the technology to niche markets rather than mainstream markets. However, other

162
RETs with the potential for better alignment with existing resources and capabilities could potentially
see other outcomes in terms of technology development and commercialization. In this respect, the
value chains of electric utilities from power generation to electricity distribution has a much higher
degree of complementarity, possibly affecting the nature of their RET investments. Therefore, it would
be relevant to further explore incumbent firms and their technology-specific investments related to
these internal factors.
Additionally, the role of MNEs in the creation of industries for renewable energy provides an
interesting opportunity to further examine linkages between the firm strategies and transition
processes. A recent study by Bohnsack et al. (2016) in this realm showed how firms influenced the
creation of the solar energy industry between 1982 and 2012. Their analysis showed that “companies
and governments were both found to be dominant actors in driving the institutional evolution process
that laid the foundation for the creation of the global solar industry”, whereby companies “were
responsible for the technological breakthroughs that changed the institutional foundation of the
industry by making mainstream production possible and allowing for an efficiency-based business
model to become dominant” (Bohnsack et al., 2016, 31). In exploring how actors influence transition
processes in society (Farla et al., 2012; Markard et al., 2012), this provides an illustration of how actor-
related patterns can influence the creation of new industries which facilitate more sustainable modes
of energy production and consumption (Geels, 2005b). Multiple chapters in the dissertation, most
notably chapter 2 (i.e. ICT firms and energy efficiency technologies) and chapter 4 (i.e. oil firms and
solar PV technology), shed light on how MNEs influence the development trajectory of industries
which facilitate more sustainable modes of energy production and consumption. For future research
at the intersection of business and management studies and transition processes in society, the
influence of MNEs could be explored for other sectors that face persistent sustainability challenges in
a similar way.
Related to the question of how business and market-based models can address challenges
related to the scalability, affordability, and accessibility of sustainable energy solutions, chapters 5 and
6 provide opportunities for further research. Both chapters identified that interrelatedness between
conditions in the environment of actors influenced their ability to develop sustainable energy
solutions. The case studies on business models for decentralized RET-based power generation in
emerging markets (chapter 5), and upscaling trajectories for energy efficiency solutions developed in
urban pilot projects (chapter 6), are all characterized by a high degree of context-sensitivity. It would
be highly interesting to conduct similar research in other geographic regions, and perform a cross-case
analysis which explicitly takes contextual characteristics (both physical and institutional) into account.
Related to chapter 5, this implies extending research beyond Asian countries to other regions which

163
face similar issues concerning access to energy in developing and emerging countries, including sub-
Saharan Africa and Latin America. For chapter 6, this could be done by performing a comparative
analysis of urban pilot projects developed in other capital cities beyond Amsterdam, which have
similar city-level environmental sustainability ambitions.
Notwithstanding the limitations regarding generalizability mentioned above, chapter 5
suggests that the role of business in sustainable development should also examine the role of bottom-
up approaches initiated by smaller, locally embedded companies in more detail. The analysis of SMEs
in chapter 5 showed that local conditions in the external environment have a major influence on the
degree to which a commercially viable business model can be developed. Literature on the activities
of MNEs in sustainable development has been well-established in multiple ways, for example through
their CSR activities and through public-private partnerships by collaborating with governments and
international organizations. However, the role of financing and delivery models of SMEs and local
entrepreneurs which take a more bottom up rather than top-down approach to market development,
has largely been overlooked to date. Perspectives from the business and management literature, such
as the business model perspective adopted in chapter 5, can help to shed light on market-based
responses to sustainable development issues. Future research should therefore take the peculiarities
of developing market contexts into account, and specifically explore the emergence of bottom-up
approaches.
Recent publications have already started to explore business models for renewable energy in
developing countries (Gabriel and Kirkwood, 2016), and within BOP contexts more generally
(Bittencourt Marconatto et al., 2016; Palomares-Aguirre et al., 2017). This includes rethinking the way
in which donor funding for sustainable development affects market conditions for the private sector,
and the scaling potential of locally developed energy solutions. In the case of RET-based rural off-grid
electrification, local entrepreneurs stated that donor-funded projects by international organizations
can potentially have a distorting effect on local market development. This limits the opportunity for
SMEs and local entrepreneurs to develop market-based solutions for access to energy. The focal firms
researched in chapter 5 showed that most of them still relied on mixed forms of donor-funded and
commercial activities, or provided rental schemes in collaboration with public or non-profit
organizations to make access to energy affordable and accessible to local customers. For long-term
market development, this may require different forms of collaboration by public, private and non-
profit actors in terms of donor funding, or other types of partnership arrangements. Similarly, this was
also reflected in the analysis of urban energy efficiency pilot projects in chapter 6, which showed that
donor-funded projects insufficiently incorporated mechanisms through which locally developed
solutions could be scaled up beyond pilot projects. Hence, more research is needed on the conditions

164
which affect the ability of local actors to scale up energy solutions, in order to inform policymakers on
how to incorporate market-based mechanisms into donor-funded projects, and thereby facilitate local
actors in reaping the benefits from scaling up energy solutions.
To conclude, both academics and practitioners perceive the diffusion of sustainable energy
technologies for energy production and consumption as a key challenge for the decades to come. The
magnitude of investments needed to address this challenge requires that actors from all societal
spheres contribute to this transformative change process, ranging from intergovernmental
organizations, national governments, and city administrations on the public side, to small and large
firms on the private side. For energy production, this primarily entails moving beyond fossil fuel
dependence towards a more diversified and RET-based power generation portfolio. In chapters 3, 4,
and 5, the analysis showed how firms invest in centralized (grid-connected) and decentralized (off-
grid) RET-based power generation contribute to sustainable development and lowering GHG
emissions. For energy consumption, this principally means improving the resource efficiency of
existing technologies and systems, particularly in energy-intensive contexts. Chapters 2 and 6
identified how firms develop and market smart city technologies, which enable energy-intensive
systems and processes in cities and urban areas to become more efficient, thereby diminishing their
carbon footprint. Overall, the research findings presented in this dissertation shed light on business
strategies in sustainable energy in heterogeneous contexts, and provide a basis for further research
at the intersection of business and sustainability-related societal challenges.

165
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 ENGLISH SUMMARY

Moving towards a more sustainable energy future is widely regarded as one the key challenges for the
decades to come, related to the negative economic, political, environmental, and social externalities
associated with fossil fuel dependence. The international diffusion of technologies which enable more
sustainable modes of energy production and consumption across the world is a central factor in this
respect. For energy production, this implies that major investments in renewable energy technologies
(RETs) are needed to replace fossil fuel-based technologies as a source for power generation; for
energy consumption, this entails the widespread deployment of technologies which enable energy-
intensive economic activities to become more energy efficient. This dissertation examines the
strategies of firms in developing and marketing technologies for sustainable energy production and
consumption in heterogeneous empirical contexts, with specific attention for the role of multinational
enterprises (MNEs) as they are crucial and powerful players in addressing global sustainability issues.
The dissertation consists of six chapters which explore business strategies in sustainable
energy, informed by business and management theories. It seeks to contribute insights into the
strategic responses of business to the diffusion of technologies for sustainable energy production and
consumption, guided by two interrelated research questions. The first research question, how do
MNEs strategically address the diffusion of renewable energy technologies for energy production and
of energy efficiency technologies for energy consumption?, is examined in chapters 2, 3, and 4. Each
of these chapters provides an organizational-level, industry-specific analysis, focused on MNEs with
established positions in their respective industries. Chapter 2 explores how firms in the information
and communication technology (ICT) industry strategically approach the market for smart city
technologies, and assesses their role in addressing energy consumption in cities and urban areas on a
global scale. Chapter 3 focuses on electric utilities with established positions in the European
electricity market, and examines how technology-specific investments in power generation
technologies are shaped by transformative changes in the institutional environment. Chapter 4
examines the strategic investments of European firms in the oil industry in developing and
commercializing RETs to diversify their power generation portfolio, taking both internal resources and
capabilities and external industry dynamics into account.
The second research question, how does business address challenges related to the scalability,
affordability, and accessibility of solutions for sustainable energy production and consumption?, is
addressed in chapters 5 and 6. Chapter 5 focuses on access to energy in developing countries, and
explores business models of entrepreneurial firms to introduce RET-based solutions in rural areas
without access to the national electricity grid. Chapter 6 identifies which dimensions and conditions

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affect the potential for urban energy efficiency solutions to be scaled up beyond pilot projects, and
examines how business-led approaches can create a broader environmental and social impact beyond
the local level. Finally, chapter 7 reflects on the wider contributions of each chapter to the debate on
business strategies and the transition towards more sustainable modes of energy production and
consumption, and discusses limitations and areas for further research. Each chapter is discussed in
some more detail below.
Chapter 2 examines how firms in the ICT industry strategically respond to the emergence and
spread of smart city technologies to address energy efficiency in cities and urban areas. It adopts and
international business perspective, and focuses on the ability of MNEs to balance environmental
pressures for global integration and the effective coordination of activities distributed across the firm’s
international network, with responsiveness to the demands and conditions of the heterogeneous host
environments in which the firm is embedded. In particular, the chapter studies whether and how
MNEs may be able to exploit resources and capabilities developed in multiple urban contexts to
develop firm-specific advantages (FSAs). The empirical section explores to which degree international
smart city technology suppliers seem to have developed FSAs from their smart city engagements on a
global scale, and sheds light on the role of three key ICT firms in addressing urban sustainability issues
though the spread of smart city technology-based solutions. It draws on semi-structured interviews
with multiple firms, public authorities, and experts in the field of smart cities, combined with an in-
depth documentation study on the activities of ICT firms in relation to urban management. This is a
key issue in relation to sustainable energy, given that cities account for approximately 60% to 80% of
energy consumption and carbon emissions (UNEP, 2011), and that the number of people living in cities
and urban areas is expected to grow from 3.6 billion at present towards approximately 6.3 billion in
2050 (UN, 2009). Chapter 2 therefore contributes to further insights into the role of firms in addressing
energy consumption in cities and urban areas.
The next three chapters focus on RETs and energy production, given that the diversification
of power generation sources away from fossil fuel-based technologies is a central challenge in the
energy transition. A wide variety of RETs has become available to diversify energy supply by replacing
fossil fuel-based power generation, including solar PV technology, onshore and offshore wind power,
biomass, and geothermal energy. While investments in RETs for power generation outpaced fossil
fuel-based technologies in 2016 (UNEP, 2017), the installed capacity of all modern RETs combined
(excluding traditional biomass) only account for 10.2% of final energy consumption (REN21, 2017).
Chapters 3, 4, and 5 explore two distinct contexts for energy production, embedded in the wider
context of the energy transition. First, the strategic approaches of MNEs in the energy industry to
investing in RETs for grid-connected power generation (i.e. centralized energy production) are

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addressed. Their large financial investments give them major decision-making power over the
diversification their power generation portfolios, and thus the broader diffusion of renewable energy
in the existing energy system. Two studies in the dissertation assess the strategic approach of MNEs
to investing in RETs for power generation, and contribute to further insight into the role of energy
firms with established positions in the energy transition. Second, the off-grid application of RETs for
power generation (i.e. decentralized energy production) in areas with inadequate access to the energy
grid are examined. While grid-connected electricity is oftentimes available in urban areas, a
combination of financial, technological, and organizational challenges can hinder the extension of the
electricity grid to all rural parts of developing and emerging countries (ARE, 2008). One study explores
the role of market-based and business-led responses to establishing RET-based solutions for access to
energy in this context, related to the wider diffusion of renewable energy for power generation.
Chapter 3 explores the internationalization patterns of MNEs in the European electricity
industry, a context which has been fundamentally reshaped over the last two decades, driven by
market liberalization and increased institutional coherence. This has had major strategic implications
for (formerly state-owned) electric utilities in terms of their internationalization expansion outside
their home markets, and has created policy-related investment opportunities in RETs to diversify their
power generation portfolios. This chapter sheds light on the (changing) role of the home
country/region in internationalization processes, based on the regionalization perspective of firm
internationalization (Rugman and Verbeke, 2004; 2005). The empirical section explores the
internationalization patterns of seven key firms from five European home countries, and draws on
data collected from annual and corporate social responsibility (CSR) reports for multiple time intervals,
combined with newspaper articles from reputable sources. By distinguishing between installed fossil
fuel-based and RET-based power generation capacity, this chapter provides a comparative analysis of
firm-specific internationalization patterns related to developments in the European institutional
environment. It gives insight into the ability of firms to create unique firm-specific advantages (FSAs)
from RET-oriented policy incentives and regulatory frameworks in their home markets, and reflects
how these factors shapes the internationalization patterns of MNEs.
Chapter 4 also focuses on investments of MNEs in RETs for energy production, and specifically
addresses the strategic approaches of firms to the development and commercialization of one specific
RET, solar PV technology. By taking into account both internal factors related to firm-specific resources
and capabilities, and external factors resulting from industry dynamics, this chapter presents a
research model to analyse the investments of MNEs in renewable energy. The model distinguishes
between three factors which impact firm-specific strategic decision-making processes: (i) the firm’s
perceived degree of complementarity between a novel technology and existing resources and

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capabilities, built up over decades in a particular industry; (ii) the firm’s approach to technology
development, based on either internal development or external acquisition; and (iii) the firm’s
strategy for technology commercialization, oriented towards either mainstream or niche markets.
Empirically, this chapter examines three key MNEs with established positions in the oil industry in
Europe and their investments in solar PV technology, based on archival data collected from annual
and CSR reports, as well as newspaper articles. This leads to a longitudinal account of firm-specific
investments and divestures in solar PV technology spanning over two decades, which unravels the
strategic decision-making processes of MNEs in developing and commercializing this specific RET. This
contributes to our understanding of how both internal and external factors shape MNE investments
in renewable energy, as part of the broader transition towards sustainable energy.
Chapter 5 continues the investigation of renewable energy production, but with a very
different context and set of firms. It explores whether and how the decentralized off-grid application
of RETs can be an economically viable option to establish access to energy in developing countries
beyond the reach of the national energy grid. It is projected that approximately 1.2 billion people will
remain without electricity in 2030 (IEA, 2010), with 80% of these people living in rural areas (ARE,
2008). A diverse range of RET-based solutions has become available in this respect, including systems
based on solar, wind, hydro and hybrid technologies. Drawing on a business model perspective, this
chapter studies how market-based approaches are emerging as an alternative to donor-funded
projects in this realm, focusing specifically on how entrepreneurial firms aim to create economic,
social, and environmental value in this market. It provides a review of scholarly work on private sector
involvement in sustainable development, and identifies which financing schemes and delivery models
have been applied in development studies to establish access to energy. It provides a categorization
of delivery and financing models along two dimensions (subsidized-unsubsidized; public-private),
which reflect the nature of existing approaches to establish access to energy. The empirical section
explores the activities of four entrepreneurial firms in Asia, which aim to develop market-based
business models for access to energy in their respective home countries by using decentralized RET-
based solutions for off-grid electrification. The study draws on semi-structured interviews to identify
the core components of business models for sustainable energy in this context, and reflects on the
complexities involved in building commercial business models in this market.
Chapter 6 focuses on energy consumption in cities and urban areas, similar to chapter 2, and
explores the dynamics underlying upscaling trajectories of ICT-based solutions for sustainable urban
development that have been developed in donor-funded smart city pilot projects. While such locally
developed pilot projects for urban sustainability have proliferated in European cities in recent years
(EU, 2014), many projects have failed to generate scalable solutions. Based on insights from

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development studies, this study presents three scaling trajectories: roll-out, expansion, and
replication. The first, roll-out, occurs when one of the pilot project partners uses the pilot’s test results
to scale up the developed product, service or solution (market roll-out), or applies the lessons of the
experiment within their own organization (organizational roll-out). The second, expansion, happens
when the pilot project is not closed or dissolved, but rather expanded with new partners and users
(quantitative expansion) or functionalities (functional expansion) to the project, or by enlarging the
geographical area in which the project operates (geographic expansion). The third, replication, follows
when a solution that has been developed in a pilot project is replicated in another context, which can
be in another organization (organizational replication), in another part of the city (geographic
replication), or in another city altogether. In addition, this chapter provides an overview of economic,
regulatory, and technological factors which can potentially drive or hinder upscaling processes. The
empirical section explores upscaling trajectories in three smart city pilot projects in the field of energy
efficiency and sustainable mobility, which have been developed as part of the Amsterdam Smart City
network. Drawing on semi-structures interviews with public and private organizations involved in each
pilot project, combined with a review of internal project documentation, this chapter identifies how
upscaling trajectories are influenced and shaped by each of these factors. The chapter contributes to
understanding the dynamics involved in upscaling trajectories, and the role of the private sector in
this process. It establishes insight into the conditions underlying the potential to scale up locally
developed energy efficiency solutions, to achieve a wider impact on sustainable urban development.
It also links these findings to the strategic approaches of ICT MNEs in this context, as discussed in
chapter 2, to identify what the role of these international smart city technology suppliers is in these
pilot projects.
Chapter 7, finally, reflects on the contributions of each empirical study related to firm
strategies and the diffusion of technologies for sustainable energy production and consumption in
society, as well as the broader implications for the energy transition. The strategic management and
international business literature adopted in chapters 2, 3, and 4 (i.e. related to the first research
question), provide a novel perspective on how internal and external factors impact firm strategies in
sustainable energy, and explain how these factors influence technology-specific investments of MNEs.
The business model and management perspectives adopted in chapters 5 and 6 (i.e. related the
second research question), shed light on the business-led and market-based approaches of firms in
developing and scaling up sustainable energy solutions, in contexts which have historically relied on
donor-funded projects and subsidized activities. The contributions of each chapter are discussed in
relation to a wider set of persistent global sustainability challenges, such as global climate change, and

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the role of firms as central actors in response to these challenges. The chapter concludes by proposing
directions for future research based on the findings and limitations of this dissertation.

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 NEDERLANDSE SAMENVATTING

De energietransitie wordt wereldwijd gezien als één van de meest urgente uitdagingen op het gebied
van duurzame ontwikkeling voor de komende decennia, gekoppeld aan de negatieve economische,
politieke, ecologische, en sociale externaliteiten die samenhangen met afhankelijkheid van fossiele
brandstoffen. Het grootschalig inzetten van technologieën die het duurzamer produceren en
consumeren van energie mogelijk maken is hierin een centrale factor. Voor energieproductie betekent
dit dat er substantiële investeringen in duurzame energietechnologieën nodig zijn om fossiele
brandstoffen als bron voor energievoorziening te vervangen. Voor energieconsumptie impliceert dit
dat het inzetten van technologieën die energie-intensieve economische activiteiten meer energie-
efficiënt maken van groot belang is.
Deze dissertatie onderzoekt de strategieën van bedrijven in het ontwikkelen en op de markt
brengen van technologieën voor duurzame energieproductie en -consumptie. Hierbij is specifiek
aandacht voor de rol van grote ondernemingen, gezien hun positie als cruciale spelers in het realiseren
van de energietransitie op internationale schaal. De dissertatie bestaat uit vijf empirische studies,
alsmede een inleidend en concluderend hoofdstuk. De strategieën van bedrijven in duurzame energie
worden beschouwd vanuit verschillende theoretische invalshoeken uit de bedrijfskundige literatuur.
Het proefschrift draagt hiermee bij aan meer inzicht in de strategische benadering van bedrijven met
betrekking tot de verspreiding van technologieën voor duurzame energieproductie en -consumptie.
In de dissertatie staan twee onderzoeksvragen centraal. De eerste onderzoeksvraag - hoe
benaderen internationale ondernemingen op strategische wijze de verspreiding van technologieën
voor duurzame energieproductie en -consumptie? - wordt behandeld in de hoofdstukken 2, 3, en 4.
Elk hoofdstuk geeft een analyse van de strategie en investeringen van internationale ondernemingen
in relatie tot duurzame energie, waarbij de nadruk ligt op bedrijven met een leidende positie in de
industrie waarin ze actief zijn. In hoofdstuk 2 wordt onderzocht hoe ICT-bedrijven de markt voor
zogenaamde ‘smart city’ technologieën strategisch benaderen, en wordt geanalyseerd hoe deze
bedrijven een rol spelen in het efficiënter maken van energieconsumptie in steden wereldwijd.
Hoofdstuk 3 is gericht op bedrijven met gevestigde posities in de Europese elektriciteitsmarkt, waarbij
wordt bekeken hoe investeringen in duurzame-energietechnologieën worden beïnvloed door de
institutionele omgeving in de landen waarin deze bedrijven actief zijn. In hoofdstuk 4 wordt vervolgens
ingegaan op de strategische investeringen van bedrijven in de olie-industrie gericht op de ontwikkeling
en vermarkting van duurzame-energietechnologieën, in de bredere context van de diversificatie van
hun bestaande portfolio’s.

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De tweede onderzoeksvraag - hoe benaderen bedrijven uitdagingen gerelateerd aan de
opschaalbaarheid, betaalbaarheid, en toegankelijkheid van oplossingen voor duurzame
energieproductie en -consumptie? - wordt behandeld in de hoofdstukken 5 en 6. In hoofdstuk 5 wordt
onderzoek gedaan naar de energievoorziening in ontwikkelingslanden, en wordt geanalyseerd op
welke wijze lokale bedrijven bijdragen aan het introduceren van duurzame-energieoplossingen in
rurale gebieden die geen toegang hebben tot het nationale elektriciteitsnetwerk. In hoofdstuk 6 wordt
ingegaan op de factoren en condities die invloed hebben op het opschalen van duurzame oplossingen
voor energie-efficiëntie in steden, waarbij er specifiek aandacht is voor de vraag hoe bedrijven hieraan
kunnen bijdragen. In hoofdstuk 7 worden de belangrijkste bijdragen van ieder hoofdstuk besproken
in relatie tot de rol van bedrijven in de transitie naar duurzame energieproductie en -consumptie,
alsmede potentiële gebieden voor verder onderzoek.

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 STATEMENTS OF CO-AUTHORSHIP

Statement of co-authorship regarding chapter 3, by Prof. dr. Ans Kolk

This British Journal of Management (BJM) article (co-authored by Daniel van den Buuse & Johan
Lindeque; authors listed in alphabetical order) built on earlier work that I had done on globalization &
regionalization in relation to CSR and sustainability (in 2009, International Marketing Review (IMR),
and 2010, Multinational Business Review (MBR)). The idea for this specific piece came up when Daniel
worked for me as a junior researcher, given our joint interest in energy firms, broadly defined. The
theoretical part directly stemmed from my earlier MBR 2010 article, but its adaptation for this specific
paper and empirical setting was done in close collaboration with Daniel. Daniel also took the lead in
collecting all the data included in the article (inspired by the empirical parts of my 2009 IMR article),
and in the write-up of the other parts. Here he was supported by Johan Lindeque, whom I had asked
to join the author team when the call for papers for this special issue came up. In the various revise-
and-resubmit rounds the three of us collaborated closely, a process in which I had a guiding and fine-
tuning role, with Daniel and Johan taking care of the actual revision (with the same division of tasks as
for the initial submission, as indicated). I regard this BJM article as truly joint work, but also one in
which Daniel showed to master the various dimensions required, with a clear lead in and responsibility
for the empirical work.

Statement of co-authorship regarding chapter 4, by Prof. dr. Jonatan Pinkse

This article published in Energy Policy, which we co-authored, built on earlier work of Daniel for his
MSc thesis. The main idea for the article was developed jointly. Daniel then conducted all the research
for the extended version of the manuscript. He collected, read and summarized the relevant literature;
he collected and analysed the data; and he did the full write-up of the study. As the full manuscript
was far too long for journal publication, I distilled a more concise version from the long manuscript
which now only focused on the oil industry. This version was then presented by me at a workshop on
investments in renewable energy in St. Gallen. We adapted the paper based on the feedback we
received during the workshop and submitted it to Energy Policy. Since Daniel was travelling when we
received the opportunity to revise the paper, I was responsible for making the revisions. Overall, this
article is joint work where Daniel did all the groundwork while I was responsible for the final framing
and fine-tuning.

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Statement of co-authorship regarding chapter 5, by Prof. dr. Ans Kolk

This article, which we co-authored (authors listed in alphabetical order), stems from research done by
Daniel van den Buuse when he worked for me as a junior researcher on a project commissioned to me
by the Partnerships Resource Centre, resulting in a position paper on accessing sustainable energy
through multi-stakeholder partnerships. The inventory of global and regional-level partnerships
compiled from secondary documentation was supplemented with primary research (interviews) on
local initiatives in four countries in South East Asia, initiated and carried out by Daniel who also
arranged contacts and visits, and took responsibility for writing the position paper. In the process
Daniel worked under my guidance, with support from Jonatan Pinkse (he and I had been publishing
on climate change, also in relation to multi-stakeholder partnerships, before and he still worked at
UvA at the time). The four local initiatives in South East Asia turned out to be small companies with a
variety of innovative business models rather than partnerships as such. In the year after the position
paper was finished, I took the initiative to write up a paper for a special issue based on the primary
research done by Daniel, given that it directly related to business and development, one of my areas
of expertise. The two of us collaborated to bring it further, resulting in joint work on a different theme
than the position paper but with Daniel’s basic material as prime foundation.

Statement of co-authorship regarding chapter 6, by dr. Willem van Winden

This chapter is based on an article published in Journal of Urban Technology in 2017. It stems from
research project done by Daniel van den Buuse under my supervision, on the evaluation a number of
smart city pilot projects in Amsterdam in the field of energy. On each smart city pilot project we
collected secondary and primary data. Daniel organized and held interviews with project leaders and
other stakeholders in order to understand different managerial aspects of each project, with a focus
on the questions how and under what conditions smart city projects are scaled up. He wrote the case
studies (supervised by me) and also contributed to the overall cross case analysis. We reworked the
findings together in an academic paper. On top of the case studies, Daniel substantially contributed
to the literature review of the paper, the theoretical framework, and the conclusions. Thus, I clearly
regard this paper as joint work.

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 ACKNOWLEDGEMENTS

The process of writing the PhD dissertation has been a very challenging and exciting experience, which
has created a great opportunity to study a topic which has fascinated me for many years now: the
nature of business strategies in response to global sustainability issues, and the wider impact that
these responses have for society as a whole. While responding to these issues require major
investments, such as investing in renewables as part of the energy transition on a substantial scale, I
feel very optimistic that the next decade will see an increasingly strong momentum for sustainability-
oriented investments by firms across different types of industries. The PhD has continuously provided
a highly interesting context to develop in-depth knowledge in this realm, informed by interdisciplinary
perspectives from academic literature as well as empirical research on business strategies in different
types of settings. Looking back on this process, I would like to thank several people who have had an
important role during my time as a PhD candidate in this section.
First, I would like to express my deep gratitude to Ans Kolk, who has supervised me throughout
this process, for all her guidance, encouragement, expertise, and contributions over the course of my
PhD. Your constant support has motivated and stimulated me enormously over the years, and your
feedback and advice has been invaluable in writing this dissertation. I really appreciate that you have
always taken the time to discuss and assess my work, and made this a priority during the whole process
of writing the PhD dissertation, even when the circumstances where sometimes challenging. You
arranged that I could join the University of Amsterdam as a junior researcher, and facilitated me in
starting at the Amsterdam University of Applied Sciences as a lecturer, while maintaining a position as
external PhD candidate at the same time at the University of Amsterdam. You have had a major impact
on my professional and academic development over the years, and I feel very grateful that I have been
able to start and complete my PhD track under your supervision.
A very special thanks also goes to my co-supervisor, Willem van Winden, for all his great
contributions during this process. I am very thankful for your involvement in writing the dissertation,
and for all the support that you have given me ever since I joined the Amsterdam University of Applied
Sciences. You have been very important in facilitating my PhD from the start, and I feel we have always
collaborated in a very positive and constructive way, both in relation to the PhD as well as on other
projects as part of the Urban Economic Innovation group. I have really enjoyed the times we worked
together over the last few years, including all the times we conducted interviews in the field of smart
cities, and I am very grateful for all your input, guidance, and feedback in writing the PhD.
I would like to thank all members of the doctorate committee, for agreeing to being part of
the doctorate committee, and for taking the time to read and examine my dissertation. I also want to

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thank the many great current and former colleagues that I have worked with over the years at the
Business Economics section at the Amsterdam University of Applied Sciences, the Centre for
Applied Research on Economics and Management, and the International Strategy & Marketing section
at the Amsterdam Business School. Thank you for your continued interest in my research projects and
for providing your support throughout this process. It has been great to work together in many
different ways, from teaching different types of courses and supervising thesis projects, to conducting
research projects and having dinner and drinks on a great number of different occasions. I especially
want to thank all fellow PhD candidates that I spend time with in Amsterdam during this period, as
well as the great colleagues that are part of the Urban Economic Innovation group, for all their direct
and indirect support for my PhD.
There are several people I want to thank in particular for their contribution to my PhD,
including the great co-authors that I have been privileged enough to work with over the years. Jonatan
Pinkse, for introducing me to the field of business strategy and sustainability during my MSc program
at the University of Amsterdam, and laying the foundation for my PhD through our collaboration on
my first project. I have great memories of our trip (which was my first conference visit ever) to the
Asian Institute of Technology in Bangkok, and I want to thank you for all your enthusiasm for my PhD
project during the early stages. Johan Lindeque, for our collaboration in the field of international
business and sustainable energy, and for sharing all his expert knowledge in this field. Gerard Dukker,
who has been my manager at the Business and Economics faculty for over four years now, and has
provided fantastic support for both my teaching and research during this period. Irith Kist, who was
very enthusiastic about my PhD project when I first applied for the lecturer position at the Amsterdam
University of Applied Sciences, and hired me on the spot. Victor Cabral and Michel Knoppel, for being
paranymphs during the PhD defence ceremony. And everyone that has provided administrative
support for the PhD, including Bas Bouten, Lucy Kerstens, and Eline van der Steen.
The first time I seriously considered to pursue a PhD was during a management and leadership
course at the University of California Los Angeles, almost exactly a decade ago now, which was taught
by John Ullmen. His way of engaging with students during each lecture, and enthusiastic way of
teaching us on developing leadership skills, were the first moments that I got exciting about the
opportunity to potentially do a PhD. While I had not even started a MSc program at that time, in
hindsight I can say that this experience (combined with other inspiring courses during the MSc
program) has eventually led to the completion of the PhD in 2018. I want to thank him, as well as other
professors/lecturers at the University of Amsterdam, that contributed to my academic development
in the years leading up to the PhD. I also want to thank everybody who took the time to give an
interview to share their expertise on a wide range of issues, mostly related to smart cities and urban

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management (for chapters 2 and 6) and off-grid renewable energy solutions (for chapter 5). Your
perspectives on the role of business in sustainable energy have been very insightful and relevant to
the dissertation. This includes all interviewees from the Amsterdam Smart City network and its partner
organizations, as well as interviewees from the firms, international organizations, and the Amsterdam
municipality that contributed to the dissertation. This also includes the local entrepreneurs and energy
experts in South-East Asia that have been kind enough to share their insights and experiences.
Additionally, I would like to thank the organizers of conferences, seminars, and meetings
which have had an impact throughout the process of writing this PhD dissertation, especially the ones
focused specifically at PhD researchers. In particular, this includes the ‘Ivey PhD Sustainability
Academy’ at the University of Western Ontario, the ‘Sustainability Transitions PhD Seminar’ at the
Arctic University of Norway, and the ‘Medici PhD Summer School in Management Studies’ at the NYU
Florence campus. The contributions of the speakers, faculty, and fellow PhD candidates from all over
the world has really helped in developing new research ideas and directions, and has provided a lot of
insights in how sustainability is emerging as a field of study across academic disciplines. It has also
provided an international network of colleagues that are working on similar topics, given that I am still
in touch with several of them.
While the PhD has not always been an straightforward process, I feel that I have managed to
keep a really great balance between work and personal life for the vast majority of it, apart from a few
months of working non-stop in the finalization stage earlier this year. I owe that to an amazing group
of friends and family, to whom I am very grateful for all the good times we have shared over the years,
from holidays and weekend trips to dinners and drinks on numerous occasions. Although I am not
getting more personal here, as I feel there are far more appropriate settings to share my gratitude
with you all, I really want to thank you all for the direct as well as indirect support during my PhD (you
know who you are). Still, there are four people that I want to give a very special thanks to: my parents,
Co and Ilse, my brother, Beau, and my girlfriend, Dorian, who have always been my greatest source of
support in life... Thank you for everything!

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