Globalization and FTA Strategies of German Companies Emerging Market Innovation: India’s Tata Nano Engine Bosch (Injection System) Mahle (Camshafts, Filter) Vibracoustic (Engine

Globalization and FTA Strategies

of German Companies

Fujitsu Research Institute

Dr. Martin Schulz [email protected]

2012.05.21

Copyright 2012 FUJITSU RESEARCH INSTITUTE

Copyright 2012 FUJITSU RESEARCH INSTITUTE 1

Outline

German global companies are leaders in globalization

The EU and the EURO are key-elements in Germany’s strategy

Companies use offensive strategies for emerging market growth

FTAs and institutional support are important defensive tools

1

GDP Growth per

Capita

Unemployment

Household Debt

China Export

Germany

UK

Japan

US

420% 6.7% 5.1%

130%

100%

0.8%

Strong German Economic Performance 2000-2010

Source: Data from Economist (2011). Copyright 2012 FUJITSU RESEARCH INSTITUTE 2

0.9% Growth per year

170% Disposable Income

9.5% 250% Increase 550%

0.7%

350% 7.8%

+

-

(2010)

(2010)

0.3

0.4

0.5

0.6

0.7

0.8

0.9

85 87 89 91 93 95 97 99 01 03 05 07 09 11


Germany and the EURO Crisis

Source: Data from Bloomberg.

Start

EURO

D-MARK

EU and the EURO are key to global strategy

EU exports, fixed exchange rate

More stable, more global than D-MARK

Global EU in trade, standards, G20

Costs of EURO crisis are a (heavy?) price to pay

Tiring & costly policy process

Financial support for neighbors

Decreasing fiscal independence

Result of EURO crisis is closer EU integration

Enforced financial integration

Slow-down of EU enlargement

Difficult path towards EU federal state

USD/DM(Euro) Exchange Rate

4

Germany’s Growth Engine: Exports (to Emerging Countries)


Global Companies‘ Exports

Germany‘s Growth Engine: Global Companies‘ Exports

Source: CEIC; National Statistics (2011)

GDP Components (% GDP)

10

15

20

25

30

35

40

45

50

55

60

20

00

20

01

20

02

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45

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04

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05

20

06

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07

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09

20

10

Germany Japan

Consumption

Exports

Investment

Consumption

Exports

Investment

% %


0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

50

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

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500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

50

100

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350

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450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Outperformance of major Export Groups

Source: CEIC; National Statistics (2011)

Global Export by Main Products (2000=100)

Cars Office & Telecom Equipment 2000=100

%


Chemicals Pharmaceuticals

Germany

Korea

Japan

World

Germany

Korea

Japan

World

Germany

Korea

Japan

Germany

Japan

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5198

9

199

0

199

1

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9

201

0

201

1

201

2

201

3

201

4

Export Engine: Emerging Country Growth

Note: 10-year moving averages roughly correspond with long-run potential output growth. Pre-Crisis data are from IMF-WEO 2008.04, post-crisis data from IMF-WEO 2009.09.

Real (Potential) GDP Growth Forecast 2009-2014


Japan

EU27

US

Emerging &

Developing

Markets

Copyright 2012 FUJITSU RESEARCH INSTITUTE 7 Source: Data: IMF (2009).

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5198

9

199

0

199

1

199

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201

4

Export Engine: Middle East & Africa are growing, too

Note: 10-year moving averages roughly correspond with long-run potential output growth. Pre-Crisis data are from IMF-WEO 2008.04, post-crisis data from IMF-WEO 2009.09.

Real (Potential) GDP Growth Forecast 2009-2014


Japan

Emerging &

Developing

Markets

Copyright 2012 FUJITSU RESEARCH INSTITUTE 8 Source: Data: IMF (2009).

Africa Middle East

ASEAN5


Global Strategy: Offensive (Globalization) vs. Defensive (FTA)

9

Global Strategy

10

Global Strategies: Offensive & Defensive

Offensive Strategies: Globalization

German global company strategies are simple: “Follow the Customer”

Companies do not wait for FTAs, they enter new markets on their own, based on their specialized products and customer knowledge

German government supports companies with export insurance, research networks (Fraunhofer Institutes), high-level cooperation with “New Target Markets”

The EU is an important tool for market integration, establishing a global currency and global standards, and coordinating foreign policy

Defensive Strategies: FTAs

German companies keep core-production at home (export 48% of GDP vs. Japan’s 15%), they need FTAs for export protection

Companies focus on business and product services (knowledge application, not knowledge transfer), they need high-level FTAs with strong service chapters

German government support for export insurance, investment protection (BITs), high-level “target market cooperation”

EU focus on WTO, strategic FTAs, EU standards



Global Strategy and the Role of FTAs

Source: Porter (1980), Ploetner (2011), Kroker (2011).

…

…

Globalization

ICT Productivity

Emerging Market Growth

Urbanization

Green Growth

…

…

Global Mega-Trends Strategy Options Strategy

Performance

Leadership New Products

New Services

Cost Leadership Supply Chains

Product Services

Specialization Niche Markets

…

…

High-Value Added

Complex Services

Customer Innovation

…

…

Strategic FTAs

-Regional Hubs-

-Service Chapters-

-Standards-

-Cooperation-


Three Levels of Global Strategy:

Corporate: Follow the Customer

Government: Bilateral Support

EU: Global Leverage

12

Global Strategy

Corporate Global Strategy: “Follow the Customer”

Source: Data: IMF (2011) Map: Statistisches Bundesamt (2012). Copyright 2010 FUJITSU RESEARCH INSTITUTE 13 Copyright 2012 FUJITSU RESEARCH INSTITUTE 13

5%

12% 1%

2% 1%

3%

1%

2%

1%

8%

3% 5%

7%

2%

0

20

40

60

80

100

120

140

160

0

5

10

15

20

25

30

35

40

199

0

199

1

199

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201

0

EU +115%

USA

+16%

Dev. Asia

+397%

Emerging

Countries

+244%

German Exports by Region

Machinery Export Shares by Country (%)

(right scale)

Bn USD Bn USD

Government Global Strategy: Bilateral-Level Support

Source: Map: Statistisches Bundesamt (2012). Copyright 2010 FUJITSU RESEARCH INSTITUTE 14 Copyright 2012 FUJITSU RESEARCH INSTITUTE 14

German Government Bilateral “New Target Markets” Selection: Market Size, Export Growth, Infrastructure Investment, Liberalization

Countries: Columbia, Mexico, Nigeria, Indonesia, Vietnam, Malaysia

Instruments: BITs, Investment Finance, High-level Visits, Export Initiatives

Bilateral Export and Investment Support Investment Protection: Broad System of Bilateral Investor Treaties (130 BITs)

Export Insurance: Hermes Insurance, High-level Meetings

EU Leadership: EU Market, WTO, FTAs, EPAs, Global Standards

EU-Level Global Strategy: Global Leverage

Source: Map: Statistisches Bundesamt (2012).

Single

Market

Copyright 2010 FUJITSU RESEARCH INSTITUTE 15 Copyright 2012 FUJITSU RESEARCH INSTITUTE 15

Development

EPAs

Selective “new-type” FTAs: “Global Europe” Strategy Selection: Market Potential, FTA Impact, Regional Hubs

Countries: Chile, Mexico, Korea, Canada, South Africa, ...

Targets: Investment, Services, Competition, Standards, Procurement

EU Global Leverage Trade Policy: WTO, Strategic FTAs, EU Market Access

EU Single Market: Market Size, Liberalization, and Standards

Globalization: EURO, Strategic FTAs, Foreign Policy Coordination

FTA

FTA


How Important is the EU-Japan FTA?

Corporate Strategy: FTA largely irrelevant

Difficult market access, but government and FTAs cannot help

German companies in Japan are very successful and profitable

Slow market (share) growth

Government Strategy: FTA largely irrelevant

Traditionally mellow relations (almost too good and boring)

Market access issues mostly non-tariff related, and too difficult to tackle

Japan remains an outsider in Asia (no trading hub, no political leadership)

EU Strategy: FTA politically relevant

Japan is an important WTO partner, but no target market in Asia

Korea is a more flexible partner as a regional trading hub

Non-Tariff issues and government procurement relevant, but difficult

Japan FTA politically important (partnership), not economically


The Strength of German Companies: From Machines to Global Business Services

17

Global Strategy

Strengths of German Companies: Business Service Focus

Competitive Performance

Imp

ort

an

ce

Product Quality

Price

Economy

Closeness to

Customers

System Integration

Advice

Service

On-time

Delivery

Delivery Flexibility

Advertising

Distribution

Cooperation with Vendors

Made in Germany

Patents

Competitive Advantage of German Firms

(Simon: Hidden Champions)

Note: Ranking based on German Company Customer Surveys.


Product Specialization

Customer “Niche” Markets

Product Services

German SME

“Mittelstand”

Production Networks

Volume Markets

New Products

Multinational Companies

Source: Simon (2010) – Hidden Champions in the 21st Century.

Strategic FTAs

-Regional Hubs-

-Service Chapters-

-Standards-

-Cooperation-

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Business Services are Key to Machinery Exports

Professional Services Trade (Trade Service, Technical Service, Engineering, Leasing, Consulting, R&D)

Global Knowledge Application

Global (Customer) Support and Product Service

Trade of Service, Knowledge, and Innovation with Global Customers

Germany

Japan

Bn USD

Export

Import


Export

Import


German Emerging Market Innovation: India’s Tata Nano

Engine Bosch (Injection System)

Mahle (Camshafts, Filter)

Vibracoustic (Engine Mount)

Conti (Fuel Pump, Fuel Sensor)

Freudenberg (Sealing)

Electric System Bosch (Starter, Alternator,

Body Electric Parts) Brakes Bosch (Main Cylinders)

Gear System INA (Shift Elements)


Undercarriage FAG (Bearing)

ZF (Torque Rod)


Ventilation Behr (Ventilator, Aircon)

Mahle (Filter)

Denso (Wiper)

German Parts in Tata’s Nano


Bosch: Tata Nano Project for Prestige, Relations, Learning

Newest Technology in the Cheapest Car

Direct injection technology developed for Mercedes and BMW

Bosch production line, looks exactly the same as in Germany or Korea

New approach to reduce complexity based on advanced technology

Emerging Market Reengineering, Reverse Innovation

“Re-engineering” by global team including 350 newly trained Indian engineers

Replacing high-end parts with “good enough” parts

Development in close coordination with Tata Motors (Bosch India Board Member)

Emerging Market Technology Base

Employing a rapidly expanding Software Center of 3,500 Developers

“Tata Nano” project software solutions used globally

Production technology exported to Vietnam and rolled-out to Southeast Asia

Strong gains from Emerging Market Cooperation, Asian Integration


Beckhoff Automation: Open Automation Systems

Source: Map and Data from Beckhoff Automation.

HQ: Verl (Population: 25,000)

Staff: 2,100; Subsidiaries: 30; Countries: 60

Products:

Industrial PCs

Real-time Ethernet, Fieldbus

Automation Control Software

80 85 90 95 00 05 11

500

400

300

200

100

0

Mn Euro

Sales


Beckhoff Automation: Customized Control Solutions

Beckhoff Strategy

Standard industry hardware

Specialized core-technology: EtherCAT

Open automation software solutions

Continuous application development

Worldwide application

Automation

Software

Industrial-PC

Fieldbus

Automation Control

Automation

Tool Control

Robotics

Process Control

Building Control Windmill Control PV Control Source: Pictures from Beckhoff Automation.

Auto

mation C

ontr

ol

FTA Gains

-Global Standards-

-Open Services-

-Cooperation-

Summing Up

Ageing domestic market requires focus on exports, process innovation at home, and global product innovation

To remain relevant in a world of G20 and emerging super-powers, the EU and the EURO are essential globalization tools

Emerging markets are key to growth – following the customers with specialized products

Business services are key to growth – customer innovation around core products

Institutional support (Government, FTAs, EU) is essential for SME globalization



Documents

Globalization and FTA Strategies of German Companies Emerging Market Innovation: India’s Tata Nano Engine Bosch (Injection System) Mahle (Camshafts, Filter) Vibracoustic (Engine