PO3034 The EU and the Global Economy
PORTER DIAMOND THEORY
Case study: German car industry
Date of submission: 16 November 2009
The luxury cars industry is one of the most prestigious mass-production industries in Germany. The country is recognised by many as the native land of the automobile; in fact in 1901 900 vehicles a year were already produced. Throughout the century the sector turned out to be the pillar of the national economy. Germany's famous premier brands such as Porsche, Audi, Volkswagen, Mercedes-Benz and BMW are enviable all around the world (ACEA, European Automobile Manufacturers Association 2008). We are now going to tackle the question of why Germany is the home base for so many successful international competitors in the automotive cars industry. Porter's Diamond Model will be used in analysing the key factors that led these firms to be both nationally and globally competitive, and the nation to become one of the three leading automobile-producer together with the USA and Japan. Michael Porter focused for four years in ten important trading nations and then discovered four interlinked advanced factors for competitive advantage for countries or region which are: factor conditions, demand conditions, related and supporting industries, firm strategy, structure and rivalry To these four key elements the author added the role of government and the role of chance (Porter, M. 1990).
German car manufacturers and suppliers are world leaders in innovation with more than 3,500 registered patents every year. With 47 OEM components and assembly plants, 32 industry-related innovative clusters and Europe’s most experienced workforce, Germany is the primary location for technology-driven companies active in all stages of the value chain. In numbers, Germany turns out to be:
-Number one automotive market by production and sales: accounting for 34 percent of all passenger cars produced and 20 percent of all new registrations in Europe; -5.7 million passenger cars and 500,000 trucks and buses produced at German plants in 2007; -25 passenger car assembly plants – more than one third of Europe’s installed capacity; - Over EUR 290 billion in annual combined revenues for manufacturers and suppliers in 2007 ;Million Units
- A year-on-year increase of 310,000 units in passenger car production – by far the largest in Europe; - Industry R&D expenditures in 2007 exceeding EUR 18 billion - more than a third of total R&D spending in the German industry; - 745,000 people work directly in the automotive industry - 43 percent of them employed at the supplier level. (ACEA, European Automobile Manufacturers Association 2008)
Applying the factors of the Porter’s model, the competitive advantage of the German car industry has shown the following results:
The first determinants of global advantage we are going to look at are factors of production which can be grouped in several categories, arguing that a more advanced factor conditions in the home market will positively impact a firm's global competitiveness. In the case of human and knowledge resources, Germany highly-qualified, available and motivated labour force has been determinant in the success for the car industry, helped by the educational system which provides on-the-job training. Moreover around the area of Berlin-Brandenburg we can find 7 universities and 21 other higher-education institutions with almost 200,000 students that make the capital region one of the densest research network in Europe and help to ensure a steady flow of engineering to assure continuity in the business. German companies bet on research and development projects annually spending a considerable amount of money on it. As a result of...