The National Competitiveness Of Germany

Published Date: 02 Nov 2017

Competitive advantage is referred by Porter as strengths, weaknesses, key success factors or distinctive competencies. Here, distinctive competencies are the cooperative learning and abilities in the organization, especially their ability on how to manage diverse manufacturing skills using multiple technologies to achieve organizational goals. Competitive advantage aids firms to formulate strong strategies to manage such aspects better than rivals.

On a broader aspect, Porter proposed the theory of national competitive advantage which depends on a certain industry of respective country. This is actually the ability of that nation to offer certain facilities to elevation that industry. Such facilities include skill level of human resource and technological know-how of that particular country. Porter denoted that the only meaningful concept of competitiveness at national level is productivity. To analyze such competitive advantage Porter proposed the Diamond model.

Firms Strategy, Structure and Rivalry

Demand Conditions

Factor Conditions

Related and Supported Industries

National Competitive advantage of Germany and impact on Chemical Industry:

Factor Conditions:

This attribute in Diamond model is referred by Porter as the nation’s position in factors of position, such as skilled labour or infrastructure, necessary to compete in a given industry. Here, the term factors of production is defined in the economy as the collection of natural resources, financial resources like capital, land, labour and infrastructures. The successful achievement of competitive advantage for a certain company and respective nation involves continuous supply of such factors at home country. However, Porter believed that these factors should be distinguished in highly disaggregated level to understand their pivotal role on competitive advantage. Thus two specific distinctions include ‘Basic’ or generalized factors like natural resources, unskilled labour etc. and ‘Advanced’ factors such as scientific base, research and innovation facilities, skilled human resources etc. Advanced factors are the most significant for competitive edge as compared to basic factors whose supply rely on exogenous endowment (Grant, 1991).

Competitiveness of Germany:

To be superior in todays intensified competitive world, effective investment and utilization of basic factors are required to sustain and specialized those deploying generalized factors. Being the world’s 5th leading economic power in terms of purchasing power parity1, Germany upholds superior national competitive position due to such creation of advanced factors. Germany’s position in this aspect illustrated in general:

Knowledge resources: Germany is eminent for its innovative-led growth with noteworthy investment in research of universities especially for industrial purpose. German Companies are amongst the top innovative one with notable achievement in R&D2.

Human resources: Germany has a highly skilled but sophisticated labour force, nearly 44.01 million (2012 est.)3. Vastly employee protection regulations and strong ethics and trust in workforce are very common in heavily capitalized companies.

1Germany Economy Profile 2013, Indexmundi

2 Global Competitiveness Report, 2012-2013

3 Economy of Germany, Wikipedia

Financial resources: Being the financial powerhouse in EUROZONE, Germany has a strong capital base for industrial development. Besides, it offers one of the lowest primary lending rates of nearly 3.1% as per German Central bank, Deutsche Bundesbank.

Infrastructures: Germany possess one of the top-class infrastructure especially air and highway transportation suitable for business environment.

Impact on Chemical Industry:

This competitiveness of German economy in factor conditions has aided the chemical sector to flourish and become one of the foremost chemical exporting industries. Key elements that boosted the growth include

The spending on R&D in Germany helps chemical companies to innovate relatively new sources of materials and advanced state-of-the-art technologies to increase the productivity enormously. German Trade and Invest revealed the following figures illustrating German expenditures on R&D:

Academic collaboration with different educational institution assisted chemical companies to improve their research base and ensure potential source of skilled manpower. More than 50 universities with chemistry facilities, another 24 universities with applied science together with chemistry and many other non-university research organizations are playing a fundamental role here.

Advanced facility for ensuring sustainable sources of renewable energy and sophisticated warehousing technologies confirm the advanced factor conditions in this industry

Numerous Chemical parks and more than 230000 km Autobahn (highway network) across the north territory benefits the companies for nonstop productivity and capacity utilization of nearly 80%.

Demand Conditions

To evaluate the national competitiveness, the second proposed element is demand condition. Porter emphasized the necessity of understanding attributes of the national environment of home country. The features and composition of home demand helps firms recognize emerging customers’ needs and works as impetus for shaping products and services accordingly. This also puts pressure on domestic firms for innovation and higher quality products.

Competitiveness of Germany

Home demand composition determines the competitive advantage for a particular industry as well as for the whole nation. Germany home environment has several sources of national competitiveness compared to others in Europe.

The country has a highly demanding, high-technologically savvy and sophisticated customer base. Since Germany dominates the high-performance technological segments of world products, it indicates the nature of their domestic market and their traditional preference for superior quality and performance.

Deutsches Institutfür Normung (DIN), the German organization for standardization, determines technological and product related principles which are other key features to domestic market demand. This institution works together with their stakeholders to set up superior standards for several industries to satisfy market competitiveness.

Government support and assistance is another competitive edge for Germany to continuously uplift their demand condition. Compared to other countries, German government spends ample amounts in research base to satisfy home customers with superb quality. Besides, incentives to the investors are also notable aspects here.

Another competitive edge for Germany is the European Union which offers business opportunity in European market with similar characteristics. This political alliance brought fundamental benefits for the economic powerhouse with high potential to satisfy a big market with similar products.

Impact on Chemical Industry:

This competitiveness of Germany as a nation promotes the chemical industry from several sides. Let us portray the focal influences for having sustainable chemical sectors:

Relentless efforts of the chemical companies to develop highly potential and super valued raw materials like genetically modified plants within few decades to meet up home demand.

High-performance and standard chemicals and latest technological advancement of the companies that made Germany the fourth leading marketing players after China, USA and Japan.

Customer base of around 500 million in total Euro zone with shared demand features due to European Union.

Higher spending of the German government for R&D improvement which is projected to be nearly 18 billion euros by 2030. Besides, according to the VCI studies on chemical sector, this innovation spending is increase at 4 percent per year.

Chemical firms are equipped with all environment friendly mechanism including wastewater and thermaltreatment formanufacturingfiltrate, maximum protection against health hazard and fires as well as environmental impact analyzing department etc.

However, demand condition also creates a hindrance for the development of this industry. To confirm the higher standard related with quality and safety, firm`s expenditures are increasing. Besides, with even strong home demand conditions, China is taking control of the world chemical production.

Related and Supporting Industries:

The third corner of Porter`s diamond model is the presence of related and supporting industries. A nation’sindustries will be better able to compete internationally if there are ‘clusters’ of industries in thehome base economy which are linked to each other through vertical or horizontal relationshipsamongst competitive supplying and buying sectors or common customers, distribution channels or technologies (Davies and Ellis, 2000).

Competitiveness of Germany:

The pivotal factor that enables the German business firms to deliberately deliver high-value to the customers is their strong linkage with related and supporting other firms. A broad range of supporting firms located nationwide of Germany continuously supporting organizations to create strong value chain network. Here the basic competitiveness lies in different parts such as

Machinery cluster among industrial technology providers with several other business firms to support firms with easy access to most advanced and state-of-the-art technologies

Academic Collaboration with education institutions like universities or other research bodies to outsource superior human skills and technological know-how

Home based related and supporting industries especially in automobiles and chemicals industries create cutting-edge competitive advantages by securing flow of information and technological interchange and providing captive products

Impact on Chemical Industry:

With emerge of chemical industry; it has always been blessed by the associated industries. This industry has heavy connection with the machinery cluster of most innovative industries across the country. Firms got technological assistance for enhancing productivity and efficiency from several technological innovators with heavy equipment. This helps chemical firms of around 2000 throughout the country to produce high-value products which have international reputation for quality. For the efficient utilization of sophisticated raw materials, several firms got assistance of robotics developed by local organizations.

Chemical park clusters are another noteworthy competency of this sector in Germany. The term technologically competent best suited with German chemical industry which ultimately stems from product and process automation, information and knowledge sharing between chemical parks and producing firms. One example of their intensive research includes working with biotechnology for nanotechnology and energy efficiency is respective field. Moreover, the concept `Plug and Play` came from these parks for customized services especially for foreign and domestic customers.

In addition, German chemical producers have strong relationship with academic bodies like universities and other research institutions. The collaboration helps them in the field of research and development over the years. Besides, human resource development is also possible through this association. Furthermore, they also made a strong alliance with several market players in European chemical industry in cross-sectorialframework within a cooperative networks, especially for research and knowledge sharing. This joint network aids in developing a sustainable new raw materials and key technologies in renewable energies as well as energy storing.

Firm Strategy, Structure and Rivalry:

Organizational strategy and structure and the intensity of rivalry present in respective industry works as a key determination for understanding the pattern of competitiveness of every country offered by any certain industry. Formulation, organization and management of a firm define the attitude by which a firm will react in international market place and compete against rivals.

Competitiveness of Germany:

Management style of German firms including significant hierarchical controlling

Strong coordination across functions especially R&D and production

Heavy investment on innovation to differentiation and product and process development.

Impact on Chemical Industry:

90 percent Small and Medium Enterprise (SME) based Chemical firms

Around 9.5 billion investment on R&D

Establishment of Chemical park to encourage and develop sophisticated raw materials

Cooperation between different bodies related with chemical industry

Strong competition with low cost producers especially from Asian continent.

Propositions for Boosting Competitiveness:

Being an international marketing manager, it is always challenging to maintain higher competitiveness with respect to that of national one. Changing business environment, upcoming competitions and most importantly economic fluctuations affects most of the major industries especially in European resign. Since marketing managers have the utmost experience of such turmoil, so recommendations for enhancing competitiveness from their prospective should include that followings:

Network of business competence:

To increase the product oriented improvement and application of latest technologies, chemical producers in Germany should work hand to hand with other related industries. Besides, main organizations and other supporting firms should be located more efficiently through a linkage of business competence hubs in different places across Germany as well as all over Euro zone.

More Efficient Value Chain:

To flourish national competitiveness in chemical industry, German policy makers should improve their efficiency and efficacy in total value chain. This will ensure substantial cost savings for organizations to compete global market place.

Emerging Market Opportunities:

Although German chemical firms enjoy a superior home demand and demands prevailing in total Euro zone, these markets are maturing and touched their apex. Thus companies should look for emerging markets in Asia, Middle East or BRIC countries to tap new opportunities and best find in strategic windows.

Eco-innovation:

Since natural resources of Germany are infrequent and sources of raw materials for chemical industry are deploying, Government should invest heavily on research & development of more ecofriendly raw materials. Besides, more sophisticated research on nanotechnology in biotechnology in chemical parks for genetic reengineering plants should be funded for achieving cutting-edge competence.

Low Cost Production with Higher Value:

Currently, the success of chemical sector went to low cost production areas. However, to be still competitive, German companies should enhance their collaboration with technological innovators and academic institutions to develop processes and ensure renewable energy for low cost production without compromising advanced quality. This could be the best counter strategy against low cost production companies in China.

Most Suitable International Trade Theory in Chemical Industry of Germany

International trade illustrates the exchange of goods and services across international borders due to globalization. These include exchange tangible and intangible items or views or resources. And international trade theory defines and offersdetail pattern of such global business and transactions and disbursement of returns gained. Among several theories relating international trade, most discussed theories are mercantilism, absolute advantage, comparative advantage, factor endowments theory, international product life cycle, new trade theory and Porter`s national competitive advantage.

After analyzing all aspects of different theories, it can be conceded that the development and pattern of German chemical industry can be best described using Porter`s national competitiveness advantage theory.

Rational

Other theories of international trade emphasize only in few aspects like market size or existence of new products etc. while Porter`s theory includes a wider array of demand conditions in home market such as higher quality demand, growth of government spending to enhance quality etc. These actually influence the global competitive performance of a particular firm.

Most successful chemical firms with the help of parks are continuously investing billions of euros on development of product, process and human resources which was proposed by Porter in his theory.

Selective factorial drawbacks encourages German firms to innovate and rivalry in market place is also fundamentally beneficial for them to achieve significant success in international market.