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MICROECONOMICS OF COMPETITIVENESS
MIB 28 GRENOBLE GRADUATE SCHOOL OF BUSINESS

CARBON COMPOSITES CLUSTER


ANALYSIS
APRIL 26, 2010

TOBIAS BADR OUDNIA


MORITZ GARLICH
VARUN THUNUGUNTLA
ATHANASIA KATSIMITSOULIA
ESTEBAN MARIN
ULRICH REBELE


CONTENTS
A. COUNTRY ANALYSIS:
1.0 Introduction
1.1 Geography and Demographics ....2
1.2 Education .3
1.3 Economics .......3
1.4 Politics .5
2.0 Export Performance .6
3.0 Issues Facing the Country
3.1 Internal Issues ..7
3.2 External Issues .8
4.0 Sources of Growth ...8
5.0 Government Response ...10
6.0 National Diamond
6.1 Factor Conditions ..11
6.2 Demand Conditions ...11
6.3 Supporting Industries 12
6.4 Firms Strategy, Structure and Rivalry .12

B. CLUSTER ANALYSIS:

1.0 Introduction
1.1 What is Carbon Composite ..14
1.2 Uses of Carbon Composite ..14
2.0 The Global Carbon Market ..17
3.0 Emergence of the German Cluster ...18
4.0 Value Chain .19
5.0 The Carbon Composite Diamond
5.1 Factor Conditions .21
5.2 Related and Supporting Industries ...22
5.3 Firm Strategy ...23
5.4 Demand Conditions 24

C. RECOMMENDATIONS ...............................................................................................................26

D. APPENDIX .........................................................................................................................................28

E. REFERENCES ..29

Change alone is eternal, perpetual, immortal. - Arthur Schopenhauer




  


A. COUNTRY ANALYSIS

1.0 Introduction

1.1 Geography and Demographics:


Germany, or Deutschland as it is called in German, is a country located in Central Europe. Bordering the
Baltic Sea and the North Sea, Germany is located between the Netherlands and Poland, just south of
Denmark. The whole country is slightly smaller than Montana and enjoys a strategic location on North
European Plain and along the entrance to the Baltic Sea. The climate in Germany is mostly temperate and
marine, with cool, cloudy, wet winters and warm summers. It enjoys the occasional warm mountain (Fhn)
wind and has the lowlands in the north, uplands in its centre, and the Bavarian Alps in south.1

Natural Resources: coal, lignite, natural gas,


iron ore, copper, nickel, uranium, potash, salt,
construction materials, timber, arable land.

The topography of Germany is varied. The area along the Baltic coast is
sandy, with dunes and small hills. Adjacent to the coast are forested
ridges and numerous lakes of the Mecklenburg lake plateau. Around the
capital, Berlin, the relief is less hilly. The southern limit of the lowland
area is formed by a wide zone of fertile loess, reaching from Magdeburg
 
 
to the highlands in the South. In the West are a wide rift valley and a
narrow gorge carved by the Rhine River. A group of plateaus and low
mountains, the Black Forest and Odenwald Mountains form the greater part of southern Germany. They
merge gradually with the highest walls of the Bavarian Alps which form the boundary between Germany,
Switzerland, and Austria. The only major lake is Lake, which is shared with Switzerland and Austria. Except
in the extreme south, all of Germany is drained by rivers that empty into the North Sea. The Rhine, with its
two main tributaries, the Mosel and the Main, dominates the western areas; farther east are the Ems, the
Weser, the Elbe, and the Oder. These rivers have estuaries that are important for the ports located there. In
the South, the Danube flows from west to east.

The demography of the Federal Republic of Germany is monitored by the "Statistisches Bundesamt" or the
Federal Statistical Office of Germany. Germany has a population of 82,329,758 (July 2009 est.) with an age
structure of 0-14 years: 13.7%, 15-64 years: 66.1%, 65 years and over: 20.3%. Its population growth rate is -
0.053% (2009 est.) and is currently a matter of concern as it is characterized by zero or declining growth,
with an aging population and smaller cohort of youths. Until the late 1950s, the population was 99%
German; the Danes in Schleswig-Holstein were the sole national minority. The influx of foreigners as "guest
workers" beginning in the late 1950s led to a surge in the number of permanent foreign residents. Germans
constituted 91.5% of the total population in 1998. Of the foreigners in Germany, Turks were by far the
largest group constituting 2.4%, the other 6.1% is made up largely of Greek, Italian, Polish, Russian, Serbo-
Croatian, Spanish ethnic groups. Presently, Germany has a rate of urbanization of 0.1% (2005-2010 est.) and


1
http://www.nationsencyclopedia.com/Europe/Germany.html


  


the urban population constitutes 74% of the total sum (2005.)2 Germany has a mix of religions among its
population which is comprised of 34% Protestant, 34% Roman Catholic, 3.7% Muslim, and 28.3%
unaffiliated or other. 3

1.2 Education:
Education is of extremely high importance in Germany, and this is exemplified The Basic Law of 1949
which grants every German citizen the right to self-fulfilment. 4In theory, citizens are able to choose the type
of education they wish to pursue and are given access to their preferred occupation or profession. The goal
of educational policy is therefore to provide each citizen with opportunities to grow personally,
professionally, and as a citizen in accordance with his or her abilities and preferences. The government is to
provide equal educational opportunities and quality education for all through a variety of educational
institutions. As of 1999, public expenditure on education was estimated at 4.6% of GDP. With a literacy rate
of 99%, Germany has one of the world's highest levels of education, technological development, and
economic productivity. Since the end of World War II, the number of students entering universities has more
than tripled, and the trade and technical schools are among the best in the world.

1.3 Economics:
The Industrial Revolution began about a century later in Germany than it did in England. Germany did not
exist as a political unit until the latter part of the nineteenth century. When the Zollverein (Toll Union) came
in 1833, it made Germany into a common market by abolishing tolls between the various German
principalities. For several decades until the 1860's there were attempts at imitating the industrialization that
had taken place elsewhere in Europe within Germany. However, these attempts were only moderately
successful. In 1870 the modern German nation was created and thereafter major industries were founded that
led to the full fledged industrialization of Germany.5
Many enterprises were government initiated, government financed, government managed, or government
subsidized. As industry grew and prospered in the nineteenth century, Prussia and other German states
consciously supported all economic development, especially transportation and industry. German banks
played a central role in financing German industry. They also shaped industry wide producer cooperatives,
known as cartels (Konzerne). Various banks formed cartels in different industries. Cartel contracts were
accepted as legal and binding by German courts, although they were regarded to be illegal in Britain and the
United States.

The government played a powerful role in the industrialization of the German Empire founded by Otto Van
Bismarck in 1871 during the period known as the Second Industrial Revolution. It supported not only
heavy industry but also crafts and trades because it wanted to maintain prosperity within the empire as a
whole. In areas where the national government did not intervene, the highly autonomous regional and local
governments supported their own industries as each state aimed to be as self-sufficient as possible. Despite
several highs and lows in prosperity and the depression that marked the first decades of the German Empire,
ultimately the wealth of the empire proved to be immense. German aristocrats, landowners, bankers, and
producers created what can be termed the first German economic miracle, the turn-of-the-century surge in
German industry and commerce at which time bankers, industrialists, mercantilists, the military, and the
monarchy joined forces.6


2
Index Mundi (http://www.indexmundi.com/germany/demographics_profile.html)
3
Wikipedia (http://en.wikipedia.org/wiki/Demographics_of_Germany)
4
Read more: Education - Germany - system http://www.nationsencyclopedia.com/Europe/Germany-EDUCATION.html#ixzz0lAMw8mCE
5
San Jose State University, Dept Of Economics: http://www.sjsu.edu/faculty/watkins/germany.htm
6
http://en.wikipedia.org/wiki/Economic_history_of_Germany


  


From the prosperity of the empire during the Wilhelmine Era (1890-1914), Germany plunged into World
War I, a war that spawned many of the economic crises that would later destroy the successive Weimar
Republic. British economist John Maynard Keynes denounced the 1919 Treaty of Versailles as ruinous to
German and global prosperity. The war and the treaty were followed by the Great Inflation of the early
1920s that wreaked havoc on Germany's social structure and political stability. During this period of
inflation, the value of the nation's currency, the Papiermark, collapsed from 8.9 per US$1 in 1918 to 4.2
trillion per US$1 by November 1923. Germany experienced hyperinflation in 1923 and chronic high
unemployment throughout the 1920's as a result of the inability of the government to effectively manage the
problems within Germany. When the unemployment rate jumped in 1930 as a result of the onset of the Great
Depression the support for the Weimar Republic drained away. After the brief period of prosperity during
the mid 1920s and the commencement of the Great Depression, the fascist candidate Adolf Hitler
capitalized on the social insurrection in order to win the 1933 election for German Chancellor.

During the Hitler Era (1933-45), the economy developed a hothouse prosperity which was supported with
high government subsidies to those sectors that had a propensity to give Germany military power and
economic independence from the global economy. During the war itself the German economy was sustained
by the exploitation of conquered territories and peoples. With the loss of the war, the country entered into
the period known as Stunde Null ("Zero Hour"), when Germany lay in ruins and the society had to be rebuilt
from scratch.7 Following the World War, The Occupation Authorities in the American, British and French
zones kept the economic policies of the Nazis in place. Price controls, rent controls, wage controls and
extensive general regulation of the economy was implemented. The net result was an economic disaster and
the creation of near-famine conditions. But by the loosening up these controls the past problem of excessive
expansion of the money supply returned. Further, since inflation had been suppressed during the Nazi years
through the use of price control the removal of these price controls also lead to inflation.8

The Germans proudly label their economy a "soziale Marktwirtschaft", or "social market economy," to show
that the system, as it has developed after World War II, has both a material and a social or human
dimension. They stress the importance of the term "market" because after the Nazi experience they wanted
an economy free of state intervention and domination. The only state role in the new West German economy
was to protect the competitive environment from monopolistic or oligopolistic tendenciesincluding its
own. The term "social" is stressed because West Germans wanted an economy that would not only help the
wealthy but also those who might not be able to cope with the strenuous competitive demands of a market
economy. The term "social" was chosen rather than "socialist" to distinguish their system from those in
which the state claimed the right to direct the economy or to intervene. Later came the phase referred to as
the Economic Miracle wherein the West German boom that began in 1950 was truly memorable. The
growth rate of industrial production was 25.0 percent in 1950 and 18.1 percent in 1951. Growth continued at
a high rate for most of the 1950s, despite occasional slowdowns. By 1960 industrial production had risen to
two-and-one-half times the level of 1950 and far beyond any that the Nazis had reached during the 1930s in
all of Germany. GDP rose by two-thirds during the same decade. The number of persons employed rose
from 13.8 million in 1950 to 19.8 million in 1960, and the unemployment rate fell from 10.3 percent to 1.2
percent. Labour also benefited in due course from the boom. Although wage demands and pay increases had
been modest at first, wages and salaries rose over 80 percent between 1949 and 1955, catching up with
growth.9

Today, as Europe's largest economy and second most populous nation (after Russia), Germany is a key
member of the continent's economic, political, and defence organizations. With the advent of the Cold War,
two German states were formed in 1949: the western Federal Republic of Germany (FRG) and the eastern

7
http://en.wikipedia.org/wiki/Economy_of_Nazi_Germany
8
http://www.sjsu.edu/faculty/watkins/germany.htm
9
http://en.wikipedia.org/wiki/Economic_history_of_Germany#The_Social_Market_Economy


  


German Democratic Republic (GDR). The democratic FRG embedded itself in key Western economic and
security organizations, the EC (which became the EU) and NATO, while the Communist GDR was on the
front line of the Soviet-led Warsaw Pact. The decline of the USSR and the end of the Cold War allowed for
German unification in 1990. Since then, Germany has expended considerable funds to bring Eastern
productivity and wages up to Western standards. In January 1999, Germany and 10 other EU countries
introduced a common European exchange currency, the euro. 10

The German economy - the fifth largest economy in the world in PPP terms and Europe's largest - is a
leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly
skilled labor force. Reforms launched by the government of Chancellor Gerhard Schroeder(1998-2005),
deemed necessary to address chronically high unemployment and low average growth, contributed to strong
growth in 2006 and 2007 and falling unemployment, which in 2008 reached a new post-reunification low of
7.8%. These advances, as well as a government subsidized and reduced working hour scheme, have helped
to explain the relatively modest increase in unemployment during Germany's 2008-09 recession - the
deepest since World War II. GDP grew just over 1% in 2008 and contracted roughly 5% in 2009. Germany
crept out of recession in the second and third quarters of 2009, largely due to rebounding manufacturing
orders and exports - primarily outside the Euro Zone - and relatively steady consumer demand. Germanys
economy will probably recover to about 1.5% growth for the year 2010. However, the relatively strong euro,
tighter credit markets, and an anticipated bump in unemployment could cloud Germany's medium-term
recovery prospects. Stimulus and stabilization efforts initiated in 2008 and 2009 and tax cuts introduced in
Chancellor Angela Merkel's second term will increase Germany's record budget deficit, which is expected to
exceed 5% of GDP in 2010.11
Germany has revenues of about $1.398 trillion, and expenditures of $1.54 trillion (2009 est.) As for its
industries, it is presently among the world's largest and most technologically advanced producers of iron,
steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages,
shipbuilding, and textiles.

1.4 Politics:
Germany has a Federal Republic type of government and is called the Federal Republic of Germany or the
Bundesrepublik Deutschland in German. As of mid 1995, Germany was coming to terms with the recent
unification of its western and eastern portions following four decades of Cold War division which was
achieved in October 1990. In effect, German unification consisted of the incorporation of the German
Democratic Republic (GDR, or East Germany) into the Federal Republic of Germany (FRG, or West
Germany). Thus, rather than reflecting a mix of both states' systems, the unified country largely represented
a continuation of the West German political and economic system. West German chancellor Helmut Kohl
preferred this "fast track" to unification, outlined in Article 23 of the West German Basic Law, or
constitution, because he feared that international circumstances might change and the chance for unification
might be missed.12
The Federal Republic of Germany is a federal State characterised by a polycentric administrative structure, a
co-operative system of federalism and the strong position of the Federal Chancellor as its head.
Its administrative structure consists of three different levels: federal, Land (state), and local. Each level is
legally autonomous and, in principle, independent in fulfilling its constitutionally defined tasks. The Basic
Law distributes the competencies and tasks between the Federal Government and the Lnder (local
government), while the local authorities form independent bodies of self-government which allows them to

10 CIA The World Fact Book (https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html)
11 CIA The World Fact Book (https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html)

12
http://www.germanculture.com.ua/library/facts/bl_politics.htm


  


regulate all their local affairs under their own responsibility. Germany is composed of 16 Lnder with 13
territorial Lnder and 3 city states (Berlin, Hamburg, Bremen) which are both a Land and a local
authority.

The primary function of the federal government is to prepare political decisions and legislation. Legislative
competencies are divided between federal authorities and the Lnder. Where the Basic Law does not
explicitly give legislative jurisdiction to the federal authorities, the Lnder have such jurisdiction. Key areas
in which the Basic Law (Art. 73) gives jurisdiction to the federal authorities include foreign affairs, defence
and monetary policy. In addition, the federal government can issue so-called competing legislation that
override the Lnder legislation in areas specified in Art. 74 of the Basic Law. This concerns the fields of
waste management, air quality control, noise protection and nuclear energy to name just a few examples.
Finally, the federal authorities have the right to issue framework legislation (Art. 75 Basic Law) in areas
such as nature conservation, landscape management and water resources management.

2.0 Export Performance:


Germany has exports of about $1.121 trillion (2009 est.) and is a leader in the exports of commodities such
as machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles. Germany is one of the
world's great trading nations. In some years, most recently in 1990, it has surpassed the US as the world's
leading exporter. The volume of exports increased from DM 8.4 billion in 1950 to DM 671 billion in 1992,
while the volume of imports increased from DM 11.4 billion to DM 637.5 billion. Manufactured products
are the leading exports, accounting for 90% of the total.
Germany supplies a large portion of the world with automobiles and car parts (17.5%). Diverse machinery
exports, including non-electrical and electrical parts, also account for a large percentage of the world's
exports in those commodities. Most of Germany's exports remain within Europe. Their most famous trading
partners are France 10.2%, US 6.7%, Netherlands 6.7%, UK 6.6%, Italy 6.3%, Austria 6%, China 4.5%, and
Switzerland 4.4% (2009 est.)13

3.0 Issues Facing the Country:


3.1 Internal Issues:
At this point in time Germany faces three major issues. First is the unemployment rate, second the economic
situation of the country and the last major issue is the aftermath of the financial crisis. Apart from these
issues, Germany also has to deal intensively with its price and wage policy, as well as discuss further about
tax reductions.14
Although most German businesses believe there will be an economic rebound beginning in 2010, the above
mentioned points impact the current situation. Although businesses are in general very optimistic, they still
struggle with under-utilisation of their capacities and high costs of shortened work time. Consequently, the
annual results of most companies are still negative. Furthermore it hinders job interviews for skilled
personnel due to the very low wages. Another consequence is that the demand on the labour market is not
increasing. Instead, from 2009 to 2010 the unemployment rate has risen by 200 000, from 3.4 million to 3.6
million.15


13
Read more: Foreign trade - Germany http://www.nationsencyclopedia.com/Europe/Germany-FOREIGN-TRADE.html#ixzz0lBY9Ljw2
14
http://www.morgenweb.de/nachrichten/politik/politbarometer/20090509_poba_probleme_und_wirtschaft.html
15
http://www.karlsruhe.ihk.de/produktmarken/standortpolitik/konjunktur/DIHK-Konjunkturberichte_fuer_Deutschland/DIHK-
Wirtschaftslage_in_Deutschland/Wirtschaftslage_und_Erwartungen_Jahresbeginn_2010.jsp


  


Besides the rising unemployment rate, Germany has to solve the problem to financially support businesses,
especially in the field of exports. Due to the fact that exports are the main driver for economic boom, the
government has to ensure that a credit crunch does not endanger future development.
The final issue concerning Germany internally is the fiscal reform on one side and the budget consolidation
on the other. As shown in the following graph, the statistics from the last years and the forecast for the
coming years show that Germany is generally spending more than they are earning. This is leading to a
budget deficit which has to be limited by a debt
brake. 16 In opposition there is the fiscal reform to
reduce the taxes which has been submitted by
several parties of the German government. The
reason for this reform is the release of the
consumers, who would then have a higher income
and more liquid money to spend, thus supporting the
general sales of businesses, lead to investments and
make the economy grow further. The negative
outcome, however, is that the taxes are one of the
major sources of income for the German
government. Due to the high national debt, Germany
has to achieve high savings. Providing tax reductions
would mean that the requisite amount of money in
order to balance the deficit would be missing.

 
    
  

3.2 External Issues:


External issues which concern Germany are the economic situation of Greece and the resulting fluctuations
in the exchange rate. Moreover, Germany is keeping a close eye on the turbulent foreign markets which
could weaken exports. Due to the fact that exporting is the actual driver of economic growth it is important
that this topic is treated with highest priority. The third issue that requires a major focus is the threat of fast
growing energy and commodity prices; with projects in several sectors the government seeks independence
from international suppliers, notably energy and the carbon clusters.

4.0 Sources of Growth:


German economy is growing again! As we can see in the diagram below, the GDP of Germany was growing
in the first quarter of 2010 by 0,3%. Over the span of 2010 experts are forecasting a growth of a total of
1.7%.17 18The three major contributors to this economic growth are the building and construction sector, the
entire service sector and the export activities. Sectors which need strong support in order to improve are the
industry sector, as well as the commerce, hotel and restaurant sector.


16
http://www.scribd.com/doc/25366189/Haushaltskonsolidierung-Steuerreform-ist-bezahlbar
17
http://www.finanznachrichten.info/wirtschaft/189-deutsche-wirtschaft-waechst-wieder-die-diw-berlin-konjunkturprognose/
18
http://www.diw.de/de/diw_01.c.100415.de/publikationen_veranstaltungen/daten/konjunkturbarometer/konjunkturbarometer.html


  


The table below shows the exact changes within the different sectors in comparison to the quarter of the
previous year. Moreover, the second graph illustrates the development of the exports from the year 2005 to
2009.19

'$ 
"'$ 

'$ #$%&"$ 


"'$ !%&$(""!" %


19

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Statistiken/Zeitreihen/WirtschaftAktuell/VolkswirtschaftlicheGesa
mtrechnungen/Content100/vgr310j.psml


  


5.0 Government Response:


The long-term interest of the government is to consolidate the economy and the national budget by
maintaining the strong
growth. In order to
achieve their aim the
government established
a new law which
comprises several
strategies for further
growth but at the same
time a plan to reduce the
national debt.
In the opinion of the
government, saving is
the wrong approach to

face the problem. 

The main focus in the new law is on three points:


1. Tax relief and promoting of families:
The government wants to support families on the one side by providing tax concessions and on the
other side by raising the child benefit.

2. Reduction of the death tax:


The death tax should be reduced to 15-43%. Especially in terms of companies succession, the
government believes that this reduction ensures more security in business continuation with the
demographic structure of Germany.

3. Reduction of value-added tax in the hotel sector:


In order to support tourism in Germany, the government wants to recue VAT from 19 to 7%.
Besides the new law other point of interest for the long-term are to improve the protection of the employees
and consumer, to reform adjustment policies, to balance regional differences, to implement measures, to
save the environment, to enable a free competition and to regulate the distribution of income and capital.



  


6.0 National Diamond:

6.1 Factor Conditions:

Germany has always been very particular about


strong modern infrastructure and connectivity. It
has a very sophisticated transportation network,
taking into consideration its natural geographic
layout, and makes good use of the sea, land and
air. The Rhine, Ems and Elbe efficiently connect
different parts of Germany to the surrounding
countries. Most importantly, the Ems flows out
of Ruhrgebeit area which is essential for the
transportation of coal and other natural resources
  
    that feed Germanys development engine. It also
has an amazing roadway network in the form of
the Autobahn that ensures speedy travel between different parts of the country. The airport and train
network, including Frankfurt airport which is the third biggest and busiest in Europe, serves as an important
cargo offloading point. Hamburg is a crucial port for shipping, and plays an important role in German export
and import. As explained before, Germany stresses on world class education to be provided free of cost to its
citizens, especially technology related studies. With 99% of the population in Germany being literate, it has
one of the world's highest levels of education, technological development, and economic productivity and by
extension has an able, well educated workforce.

In terms of technology to support any initiatives, both male and female scientists from Germany are playing
in the Champions League of international research. The number of applications for patents serves as an
indicator of innovative strength: Germany is the leader in this field within Europe. 20 The German
government also has an interesting economic policy to enhance prosperity by laying down the groundwork
for stronger growth and more jobs, to promote efficient and cost-effective economic activity, and to
safeguard competition and transparency in the markets. In contrast, environmental policy focuses first and
foremost on reducing burdens to the environment. Social policy, in turn, strives primarily to promote social
cohesion. A sustainable economic policy also targets the efficient use of energy and raw materials. This
means that factors such as energy consumption, resource consumption and transportation need to be
increasingly decoupled from economic growth. Over the long term, the use of renewable natural resources
must be linked to the capacity of such resources to regenerate. Non-renewable natural resources must be
used sparingly, and anticipated scarcities must be counteracted through innovation.21

6.2 Demand Conditions:

Home demand conditions influence the shaping of particular factor conditions. They have an impact on the
pace and direction of innovation and product development. According to Porter, home demand is determined
by three major characteristics: their mixture (the mix of customers needs and wants), their scope and growth
rate, and the mechanisms that transmit domestic preferences to foreign markets. Porter states that a country
can achieve national advantages in an industry or market segment if home demand provides clearer and
earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets
have a much higher influence on an organization's ability to recognize customers needs than foreign

20
www.auswaertiges-amt.de
21
http://www.bmwi.de/English/Navigation/Technologypolicy/theinformationsociety.html.


  


markets do.22 German consumers are really sophisticated in terms of environmental protection, renewable
energy and innovation. There has been a constant need in the automobile industry and Wind Energy industry
(turbines) for an alternative raw material that lasts longer, is safe for the environment and serves the
consumers needs.

6.3 Supporting Industries:

The most important industries in Germany are the Automobile, Electronic, Engineering and Chemical
industries. Over the last years, there has been a structural change of the industries traditional branches like
steel and textile. There has been a decline due to changes in the consumer market. The current new order is
the Pharmaceutical industry and renewable energy industries.23

6.4 Firms Strategy, Structure and Rivalry:

Germanys ranking has declined from 9th to 17th


since 2001 as a result of being impacted by high tax
burden, distortive subsidies, low prevalence of
foreign ownership and strong impact of strict
business rules on inbound FDI. Investor protection
and labor law rigidity remained unfavorable with
Germany ranked 46th and 52nd on these issues
respectively. High personal tax burden is exacerbated
by high total cost of welfare, resulting in disincentive
to work and invest. Germany has one of the most
expensive welfare systems in the world with total all-
in tax and contribution rate of over 50% compared to
the 30% OECD average. Federal subsidies declined
in 2007 to 5.9 billion Euros from peak level of 10
billion Euros in 2000, but are still distortive and only
focused on specific industries. On the other hand,
Germany is ranked 1st in intensity of local
competition as the result of a very strong policy
framework shaped by post-World War II allied
decartelization policy inspired by US antitrust law,
and by the paradigm of social market economy 
focused on improvising domestic competition.24


22
http://www.themanager.org/models/diamond.htm
23
http://www.tatsachen-ueber-deutschland.de/de/wirtschaft/main-content-06/die-wichtigsten-industriesektoren.html
24
http://gcr.weforum.org/gcr09/


  


B. CLUSTER ANALYSIS:
1.0 Introduction:
1.1 What is Carbon Composite:
Carbon composite is a generic term that refers to a class synthetic, pure carbon materials composed of
carbon fibers reinforced in an all carbon matrix. First synthesized in the late 1950s,25 this material was
initially used in the aerospace domain. Space shuttle programs quickly adopted its use as ablative material,
replacing graphite as the primary material used in thermal protection. During the 70s carbon composites
gained popularity across several research labs in the US and Europe, and the technology was extensively
developed over the next decade. This was the golden period for carbon composite research, as research and
development efforts focused on multiple aspects from improving the constituent materials to the design and
manufacturing process. This greater understanding of the underlying science and the evolution in fabrication
techniques is what consequently made carbon composite an economically viable material, finding new
application in a number of other industries beyond the aerospace sector.
At the root of the success of carbon composites is the inherent structure of carbon itself. The carbon element
as a solid substance can be manipulated to exhibit a wide range of structures and properties, and all these
variations can be achieved without the addition of other compounds as is done with metal alloys. Carbon can
be amorphous or crystalline in structure, strong, hard and stiff or soft and ductile, can have different
porosities, and can be made impervious to liquids or gas. The use of different manufacturing techniques can
combine these and other properties to create a carbon composite highly tailored to its application. For
example, by manipulating the temperature during fabrication, the resulting reinforcing carbon matrix can
range from amorphous to graphitic. The greater the degree of graphitization, the more thermally conductive
the carbon composite will be, but also the more brittle. The carbon fiber is also highly versatile in conferring
the final properties to the carbon composite. Depending on the orientation of the fiber, the composite
material can be constructed so that different amounts of the load-carrying fibers can be oriented in specific
directions to accommodate the design loads of the final structure. 26 As a result, the carbon fiber composite
can be stronger in a certain direction or equally strong in all directions. The complex interwoven nature of
the fiber can make the composite very difficult to break such that even upon impact of many tons it will only
deform minimally.

1.2 Uses of Carbon Composite:


As of 1998, 79% of the world market for carbon composite was the US, with another 20% residing in
Europe and Russia, and the final 1% in Japan27. Extremely lightweight, amenable to being fabricated in
large sizes and with a strength comparable to that of steel but with a heat capacity that is 2.5 times greater
thus making it able to withstand temperatures of up to 3000C, carbon composite has dominated as the
material of choice by the aerospace industry for severe environment applications such as atmospheric re-
entry, solid rocket motor exhausts and disc brakes in high-performance military and commercial aircraft.
Additionally, the USA and France have spent large sums in its development for military purposes, such as
missile parts. More commercial applications in thermal protection include heating elements, furnace
fixturing, and heatshields in furnace insulation28. While the majority of the market share still remains in the

25
Fitzer, Erich, and Lalit M. Manocha. Carbon Reinforcements and Carbon /carbon Composites. Berlin: Springer-Verlag, 1998.
26
Rellick, Gerald. Carbon and Graphite Matricesin Carbon-Carbon Composites: An Overview of Their Formation, Structure and Properties.
27
Chung, Deborah D. L. Carbon Fiber Composites. Boston: Butterworth-Heinemann, 1994. Print.
28
http://www.fibermaterialsinc.com/frCCcomp.htm


  


aerospace and also military sectors29, still carbon composites have seen widespread use across other
industries, having been cited in the manufacture of solar and photovoltaic modules, wind power
installations, robotics systems, medical technologies, and even jewellery to name a few30.
The application of carbon composite is limited only by imagination and the array of structural and functional
characteristics the material can take on. Among prospective possibilities, the role of carbon composites in
space structures and prosthetic devices may arguably be among the more exciting and promising
applications on the horizon.

2.0 The Global Carbon Market:


According to a study of Prof. Philip M. Parker,


 Ph.D. of INSEAD and his team of the Innovation
and Society chair, the global demand of carbon and
   graphite composites increased steadily in the last
 years. From a around 1,5 Bn. $ market (2000), the
size will approximately reach around 2,5 Bn. $ in


(2011)31. The given numbers represent latent
 demand commonly defined as the industry
 earnings of a market when that market becomes
 
 accessible and attractive to serve by competing
 firms. The increase is due to the main demand

drivers in the industry, which is the Aeronautical
sector. Although other industries seek to utilize
carbon or graphite fibres as well, Aerospace is still a
 
    
  key market. The new supersized passenger jets, the
Airbus A380 and the Boeing 787, both use
significant quantities of epoxy resin impregnated with carbon fiber, or carbon fiber -reinforced plastic
(CFRP), as a primary structural material. The use of CFRP in aircraft is expected to grow by 12% per year,
according to Japan-based Toho Tenax, the worlds second leading carbon fiber producer.32 However, the
latest models of smaller airplanes will use the same materials as well. According to the same report
consumption by other manufacturing industries is growing even faster.
Driven primarily by the growth of applications such as increasingly large wind-turbine blades, pressure
vessels such as those used in compressed natural gas tanks, sport equipment industry, machinery and the car
manufacturing industry, the growth rate is estimated to be approximately 15% per year.33 The main hub for
carbon fiber production lies in Japan. Its top three players, Toray Industries, Toho Tenax (including Fortafil)
and Mitsubishi Rayon, account for 70% of the world market.34 The remaining 30% are primarily covered by
large corporations such as Hexcel Inc., Zoltec, Cytec Industries in the US, SGL Carbon Group and Schunk
Group in Germany, as well as Sumitomo and Kureha Corporation in Japan35. Although carbon fibre


29
Chung, Deborah D. L. Carbon Fiber Composites. Boston: Butterworth-Heinemann, 1994. Print.
30
http://www.en.carbon-europe.com/about_CCT.html
31
Prof. Philip M. Parker, Ph.D., The 2006-2011 World Outlook for Carbon and Graphite Fibers (2005), INSEAD ICON Group
International, Inc., San Diego (CA) USA
32
Eiichiro Uchino, Japan Carbon Fiber, The Chemical Daily, October 23, 2008, http://www.icis.com/Articles/2008/10/27/9165932/japanese-
companies-dominate-growing-carbon-fiber-market.html
33
IBID
34
IBID
35
Lucintel, Worldwide Carbon Fiber Competitive Analysis and Leadership Study 2007,
http://www.researchandmarkets.com/reportinfo.asp?report_id=592017&t=t&cat_id= , October 2007


  


production is somewhat concentratedd in Japan, demand is spread (unequally) arround the globe. As it was
mentioned above, industries other thhan aviation are looking for usage of this multi-functional
m material -
especially the car manufacturing and the wind blade industry. This results in the high
h demand in Europe and
Northern America. Growing demand and few suppliers led BMW to the decision of opening its own carbon
plant in Moses Lake (WA)36 and the US to integrate vertically in order to satisfyy its hunger. In cooperation
with SGL Carbon Group they will prooduce approximately 3.000 metric tons per year.y This is a strategic step
towards more independence within this
t hard-fought market. Further, it will secuure its supply for BMWs
Megacity Vehicle.

A closer look into the futture tells us that aerospace


 
  component makers conttinue to be attracted to
companies with composiite capabilities; however,
  few acquisitions targets off scale are available, says
  (M&A) specialist Gran Thornton LLP (Boston,
 
Mass.). Consequently, strategic component
  manufacturers are expandding their own businesses
    organically as they cann no longer ignore the

   importance of working withw composite materials.

Many composite businessees failed to see the growth
they expected in 2009, ass much of the market was
 tied to the Airbus A400M M and Boeing 787 which
# 
  !#"#   
 # have faced delivery details37. In addition to possible
future alliances between carbon
c fiber manufacturers
and their biggest consumers there aree new competitors popping up around the gloobe. For example, the news
service Defense News revealed a plan in 2008 that the Russian government pllans to spend $2.7 billion
through 2015 to boost the countryss chemical industry, including development of o facilities to manufacture
carbon fiber for aerospace and milittary use. According to Prime Minister Putinn, Russia had lost critical
technologies and production capacitiees for strategic chemical materials after the disintegration
d of the Soviet
38
Union. Apart from Russia and its i plans for building its own carbon fibeer supply other emerging
economies such as Brazil, India and China might attempt to do so as well. Especcially because of the nature
of the industries, operating in the BRIICs will need the carbon fibers in the future.

3.0 Emergence of the


e German Cluster:
Advanced composites technology staarted in the 1960s in the U.S. with the aim of
o finding a solution for the
same problems business face today: high fuel prices. With high manufacturing costs
c and uncertainty about
Carbon Composites usefulness in mass manufacturing, research and technoloogy development focused
heavily on the aerospace and aviatiion industry.39 As one of the worlds mostt respected manufacturing
countries, Germany is a precursor in aviation and airplane construction. In 1989, the Institute for Structural

36
SGL/BMW joint venture picks Washington foor carbon fiber plant, SGL Automotive Carbon Press release, 04.05.2010, on
Compositesworld.com Web Site http://www.comppositesworld.com/news/sglbmw-joint-venture-picks-washinggton-for-carbon-fiber-plant ,
accessed April 2010
37
M&A report: Aerospace manufacturers still looking for composites capability, Grant Thornton LLP Presss Release, on
Compositesworld.com, http://www.compositeswoorld.com/news/ma-report-aerospace-manufacturers-still-lookking-for-composites-capability ,
accessed April 2010
38
Russia targeting manufacture of carbon fiber,, Defense News Press release, 15.05.2008, on Compositeswoorld.com,
http://www.compositesworld.com/news/report-russsia-targeting-manufacture-of-carbon-fiber , accessed April 2010

    

       
    
 
http://www.wtec.org/loyola/polymerss/c1_s2.htm


 


Mechanics of the DLR (German Center for Aerospace & Aviation) created the first CFK yaw rudder40 and
some 20 years ago, Airbus opened a German plant becoming one of Europes biggest Centers for Carbon
Composite handling.41

The aerospace industry is still one of the


strongest drivers in Carbon Composite
Technology; however, as illustrated in
Figure 3.0.0, many other industries
recognized the advantages. While
applications on Sports equipment focus
only on Greater China (Tsai, n.d.),
especially wind power and car industry
seem to be fields where the German Carbon
cluster may specialize in. Two Bavarian
associations, Cluster New Materials and
Carbon Composites e.V., are committed to
a prosperous Carbon Composites Cluster in
Germany and pursue the objective to
further develop technologies for other
industries. (Lison, J., 2008) In 2010,
chances are good that Carbon Composites
   
 technology is soon as sophisticated as to
allow for volume production. One event in
particular has drawn attention to the Carbon Composites Cluster; Ms. Klatten purchasing 22% of the Carbon
Composite specialist SGL. As one of Germanys most influential business women, Ms. Klatten also holds
about 92% of Altana (special chemicals), 22% of Nordex (wind energy plant constructor) and in conjunction
with her mother and brother 46.7% of BMW (automotive). (Financial Times Deutschland, 2009) The ties
she creates between these four companies imply the objective to develop, and in the long run control the
German CFK cluster. In fact, her initiatives have already led to a Joint Venture between BMW and SGL.
The two companies are building a new Seattle based plant specializing in batch production of Carbon fibers
for BMWs carbon car project Megacity Vehicles. (Ruch, 2010) Because of the close Boeing plant, many
companies in the region are specialists in the production of carbon fibers allowing the Joint Venture to
benefit from the Know-How of a foreign Carbon Cluster. Furthermore, CFK fiber production is very energy
intensive and energy prices in Seattle are low due to the installation of hydroelectric power stations. After
their production, SGL Germany processes the fibers into car components enabling BMW to use them in
assembling the Megacity Vehicle. (Ruch, 2010) In case this enterprise becomes a success, capacities for
CFK handling will increase by multiple thousands of tons (Fasse & Murphy, 2010) with SGL becoming
Germanys Nokia in the Carbon Cluster.

4.0 Value Chain

A composite material is made when two or more materials are combined together to make a new and
different material. Researchers take individual materials, one a reinforcing material for strength and

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stiffness, and the other glue or a binding material, such as a resin, to surround and hold the reinforcement in
place. When the reinforcement material and the glue are combined, they make a new material. This new
material usually is not only strong and resistant to extreme temperatures, but can be much lighter that the
existing materials.
Graphite composite is composed of carbon fibers which are very strong, and to make a carbon composite
from this material the researchers combine it with polymer resin. Depending on the properties of the
particular polymer, the properties of the composite will be determined. One of the properties is maximum
temperature at which the composite can be used; the second property determines the strength of the
material.42



The Graphite processing requires substantial investment and technical knowledge, and there are not many
companies at this stage. In comparison, there is a much higher number of companies at the third and fourth
stages, when the composites are made. Further, the companies that focus their work on the last stages of the
process are normally relatively small companies, and those companies that focus on the final stages and
produce the carbon fiber are larger.It is also important to note that after the second part of the process, the
synthesis, the nano tubes can also be used in: electrical circuits, as paper batteries, in solar cells, in ultra
capacitors, and in many other modern applications43.

In the Germany, carbon cluster we find companies that specialized in every part of the transformation
process, universities conducting research in parallel to companies and the development of new and more
complicated products. Interestingly, there is a great level of integration of the different stages of the value

42
Fiber-Reinforced Composites: Materials, Manufacturing, and Design, Third Edition (Dekker Mechanical Engineering), P.K. Mallick 2010
43
http://www.understandingnano.com/nanotubes-carbon.html for more applications for nanotubes


  


chain. There are sophisticated custom


mers that are becoming the catalytic force of
o the great synergy within
this cluster.

5.0 The Carbon Com


mposite Diamond:


 

5.1 Factor Condition


ns:
The factor conditions encompass the high quality inputs that are needed for the cluuster where there has to be
highly skilled labor force, efficient infrastructure,
i low cost supply of capital as a strong scientific base so
that companies can access that scientiific structure to build upon it.

Graphite:
According to the U.S. Geological Surrvey, Germany is lacking of any Graphite minning industry44, thus
making it difficult for companies to get
g sufficient raw material for development.

Infrastructure:
Due to its central location in Europee, Germany is one of the most developed countries with regard to its
infrastructure. This is reflected in most
m of the transportation networks within thhe country that counts over
550 airports, over 40,000 km in railways, and over 600,000 km of paved roadwayss45.
Germany is a social market economyy. This means that the state guarantees the free
f entry of entrepreneurs
and at the same time undertakes the task
t of maintaining the social balance. The German
G government seeks a
market economy based on the divisioon of labor and where the prices of goods annd services are determined
by the free market, and by extension making
m a fairer and equal economy.46

44
http://minerals.usgs.gov/minerals/pubs/commoddity/graphite/graphmcs06.pdf
45
https://www.cia.gov/library/publications/the-woorld-factbook/geos/gm.html
46
http://www.tatsachen-ueber-deutschland.de/en/eeconomy/main-content-06/economic-system.html


 


Entrepreneurship:
Germany has a total entrepreneurial activity of 5.1% and a ranking of 24th in the world,47 which may be
indicative of the absence of appropriate preparation for the new entrepreneurs. Furthermore, the low
percentage of entrepreneurship in the country may be attributed to the lack of ambition of students.
The entrepreneurial mindset is followed by a cultural disapproval and by economic restrictions through high
corporate taxes and high social security standards. On average, revenue from corporations is about 2%,
while unemployed persons may receive 60% of their salary for as long as 3 years. This does not encourage
entrepreneurial spirit in Germany since the residents can make more money from the social welfare system
than by owning their own company.
The creation of a company in the country is relatively straight forward and with a complete lack of
bureaucracy, normal companies operate with limited liability (Gesellschaft mit beschrnkter Haftung
(GmbH)). Under German law, the GmbH, has to have a minimum funding of 25.000 Euros that has to be
paid to the country in a minimum of 3 years, this would potentially enable the company to start with a 1
Euros capital.48

Research and Development:


There is great research in manufacturing and material technology involving some of the best universities in
Germany: the Technical University of Munich, University of Augsburg, University of Bayreuth, The
University of Stuttgart, the Karlshure Institute of Technology.
The technical University of Munich is one of the strongest research universities in Germany and in all of
Europe, having supported relevant ranking such as DFG Funding Ranking and the research ranking of the
Center for Higher Education (CHE). This university has pertinent research on Physics, chemistry, Civil
engineering, Mechanical Engineering, Electrical Engineering.49
The University of Bayreuth has the Fraunhofer Project process innovation, where the mission is to work in
conjunction primarily with companies on the East Bavarian region. Their core value is to develop an
innovation process and a measurable productivity improvement that should also be applied to small and
medium companies.50
The University of Stuttgart enfaces the direct use of new materials. Their research goes from Lightweight
materials, Manufacturing, Aircraft design, and wind energy.

The customers:
Last but not least, the final part of the value chain of this cluster is the customers. As mentioned earlier, the
application of this technology varies from nanotechnology, to wind energy, and airplane construction. The
great advantage of this cluster is that it has highly sophisticated customers. These customers are interested in
the use of this technology in order to gain competitive advantage in their own markets. An example from the
article in composites world, the BMW Group (the final part of the value chain of composites) has a joint
venture with SGL Automotive Carbon Fibers (the starting part of the value chain).51 They are working to
develop a car chassis completely out of carbon composites which will in turn make the car even lighter and
reduce energy consumption.


47
Global entrepreneur Monitor special report : A global perspective on Entrepreneurship Education and Training, 2010
48
http://bundesrecht.juris.de/gmbhg/ Law relating to companies with limited liability
49
Technische Universitt Mnchen Technical University of Munich www.tum.de
50
University of Bayreuth www.uni-bayreuth.de
51
http://www.compositesworld.com/news/sgl-automotive-carbon-fibers-expands-on-bmw-plans Carbon Composites world.


  


5.2 Related and Supporting Industries:

Although this report focuses on Germany in general, the most obvious indicators of a Carbon composite
cluster may emerge in Southern Germany and more precisely in the area around the city of Augsburg in the
district of Swabia, in Bavaria. As mentioned above there are two main drivers for a possible formation of a
cluster. First is the Bavarian Cluster Campaign,52 which uses as its role models the Bavarian Ministry of
Economic Affairs, Infrastructure, Transport and Technology mentions the Silicon Valley (IT) or Oxford
(Biotech). The prime goal of the 2006 formed initiative is to enhance the ability of the states companies to
compete in globalized markets. Particularly, SMEs lack of access to research institutions and therefore this
campaign are supposed to tighten this collaboration. Hence the Ministry identified 19 key sectors53 (see
figure). The Advanced Materials Cluster plays a central role. Among this cluster the Ministry counts some
4000 companies researching and working on the following areas: Metal-based light-gauge materials, fiber
composites, creating and processing polymers, creating materials used in polymer-based electronics, high-
performance technical-use ceramics and glass, technical-use textiles and functionally-treated surfaces54.
Thus the identified Carbon
Composite Cluster is a part of
the Bavarian Advanced
Materials Cluster.
Second there is Carbon
Composites e.V. (CCeV).
Founded in March 2007 by 10
renowned companies and
research institutions in
Southern Germany, since then
it has been strongly
expanding55. According to
Michael Porters prerequisites
for relating & supporting
industries56 this association
boosts its 93 members on
topics like research and
innovation. Within CCeV
there are many different types

               of companies working in
every field of the Carbon fibre
or composite Value Chain. These range from carbon fibre producing companies (SGL Group)57, to
Machinery & Equipment producing (M&E) companies, to end customers like EADS Eurocopter or AUDI.
In between there are research institutions like Fraunhofer Gesellschaft and KIT (Karlsruhe Institute of

52
Bavarias Cluster Campaign Networking Success , ed. Martin Zeil, Katja Hessel (Bavarian Ministry of Economic Affairs, Infrastructure,
Transport and Technology, May 2009) p. 4 et sqq.
53
IBID
54
IBID
55
Carbon Composites e.V., Herzlich Willkommen bei Carbon Composites e.V., Carbon Composites e.V. web Site, http://carbon-
composites.eu/ , accessed April 2010.
56
Michael E. Porter, On Competition, updated and expanded edition (Boston, MA: Harvard Business School Publishing, 2008), p.267
57
Carbon Composites e.V., Mitglieder, Carbon Composites e.V. Web Site, http://carbon-
composites.eu/module.php?link=TZ2lGdjF2Xx8FblZXZM1kJw0DZJJWZ3ZCN4ITPlZXa0NWQHJlJxkTPlZXa0NWQHxkJx0DblZXZM1kJ2
0DZJ5kJx0TZtFmb02 , accessed April 2010.


  


Technology) as well as higher education institutions like the Universities of Augsburg, Bayreuth, Stuttgart
and the Technical Universities of Munich and Dresden. From governmental side, there is the city of
Augsburg and the borough of Meitingen.
Bavarian Advanced Materials
Cluster and CCeV operate as the two
umbrella organizations helping,
coordinating and connecting its
member companies and institutions.
Thus they are able to shorten lines of
communication, guarantee quick and
constant flows of information and
allocate an ongoing exchange of
ideas and innovations. One factor of
competitive advantage is that all of
these home-based, related and
supporting industries provide in
innovation and up-grading an
advantage based on close working
relationships.

    




As mentioned before, the rivalry within the cluster has to be a non zero sum competition. As such, all
companies have to compete in a way where the differentiator is the key to success, rather than the prices.
Adding to this requisite, to make this process more efficient, there has to be a high integration within the
companies and their specialization occurring in the different parts of the value chain. In this cluster we can
find the required synergy of the companies, as seen in the following cluster map.
We will take the illustration to explain the synergy that is occurring, for example, in the automotive industry.
First, there is customer who, in order to improve characteristic of his product, orders a new type of breaks or
a component made from lightweight material that will have the same mechanical and resistance qualities.
Then, this customer will command this new component from the molding companies. The molding
manufactures of carbon based products, makes the plate, tube, or profile according to the customer
specification of size58. The product is then molded from the raw plates provided from carbon fiber
manufactures and carbon engineering plants. These plants sell the plate with the mechanical specification
required by the customer. To produce the carbon fiber and fiber plates, there is a required know-how and
research that is made by the companies in conjunction with research institutions and universities. This is a
machine intensive process and requires state of the art machinery, which are supplied by local engineering
companies.

58
http://www.flash-en.carbon-composite.com


  


5.3 Firm Strategy and


d Rivalry:
The most important thing we identifiied is the fact that among most of the compaanies located in the cluster
we find big rivalry and competitioon. They compete for really demanding customers
c which are also
cooperating in a high competitive market.
m Perfect market conditions to set the limits even higher and be
extremely innovative.
The rivalry in the indentified cluster has to be a none zero sum competition. Thiss means that all companies
have to compete in a way where the differentiator
d is the key to success, rather thann based the competition on
the prices. Further adding to this reequisite, to make this process more efficiennt, there has to be a high
integration between the companies and a that the specialization of them occurs inn the different parts of the
value chain. In this cluster we can fiind the required synergy of the companies, as seen in the cluster map
beneath.


 

We will take the example to explain the


t occurring synergies - for example in the car
c industry. First there is a
customer order to improve characterristic of his product, orders a new type of breaks
b or piece made of a
lightweight material that has the same
s mechanical and resistance characteriistics. Then the company
commands the piece from the molding companies.
The molding manufactures of carbonn based products, produce the plate, tube, or o profile according to the
customer specification of size59. The product is then molded from the raw plates provided
p from carbon fiber
manufactures and carbon engineerinng plants, these plants sell the plate with thee mechanical specification
required by the customer.



    





 


To produce the carbon fiber and fiber plates, there is a required know-how and research that is made by the
companies in conjunction with research institutions and universities. This is a machine intensive process and
therefore requires state of the art machinery which is supplied from local engineering companies.

5.4 Demand Conditions:

This element of the Porter Diamond may be the most elementary in regards to the German Carbon
Composites Cluster. According to Porter60 a nations companies gain competitive advantage if domestic
buyers are the worlds most sophisticated and demanding buyers for the product or service. () They
pressure companies to meet high standards; () demand conditions provide advantages by forcing
companies to respond to tough challenges. Two German industries may be regarded as the worlds most
demanding and sophisticated in regard to Carbon Composite processing, i.e. automotive and renewable
energy. A distinction between sophisticated demand and sophisticated buyers needs to be addressed. While
players in the aerospace industry are very quality-conscious, they are less concerned with low manufacturing
costs. However, in the car industry low manufacturing costs are crucial. Furthermore, worldwide concern
about CO2 emissions puts high pressure on the industry to manufacture environmentally friendly cars. The
tendency towards e-cars with heavy lithium battery engines requires automobiles to be as light as possible in
order to drive long distances and achieve high speed.61 In
2007, 5.7 million cars were produced in Germany.62 This
figure does not only indicate the strength of the German
automotive industry, but also the enormous prospects for
the German CFK cluster if they succeed in making carbon
composites suitable for line production. Though BMW
may soon be ahead of the other big car manufacturers due
to its Joint Venture with SGL, they also invest and research
in the field of Carbon Composites. Audis Space Frame
Technology is based on Carbon Composites components
and is announced to soon be integrated into serial
production.63 With the automotive industry holding the
    
most significant position in Germanys economy, their
need turns into national concern. Hence, with the
automotive industry behind them, the government and scientific institutions will be tempted to encourage
Carbon Composites technology development.
Besides its strong automotive industry, Germany is world leader in the sustainable energy revolution. With
an ambitious goal to reduce CO2 emissions by 270 million metric tons, the renewable energy sector in


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Germany is growing.64 Objectives to build offshore wind power stations request Carbon Composites because
metals and fiber glasses do not withstand those forces dominating at sea.65
These two industries, therefore, represent highly sophisticated buyer groups pressuring Carbon Composites
companies in a collaborative way to achieve a breakthrough in material handling. Their own industrys
sophistication is the engine behind current cluster developments and the raising of Carbon Composites
significance for mass production.


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C. RECOMMENDATIONS:

The conduction of the country and carbon cluster analysis for Germany has revealed that the country holds
many characteristics favoring the clusters success. The initial assumption that the cluster was nonexistent
has proven to be wrong. Though the cluster is in its fledging stages, there is no doubt about the clusters
actuality. In fact, research has shown that especially Southern Germany is highly concerned with the
development of the Carbon Composites Cluster. With the state of Bavaria putting the greatest efforts into
facilitating the clusters emergence, it will be interesting to see whether CFK will finally become rather a
Bavarian cluster than a German.
Concerning the country environment, Germany provides many positive factor conditions for the Carbon
cluster. Though the country lacks own graphite deposits, it provides the worlds most sophisticated
infrastructure and a high educated workforce. Further, it has a long well respected history in material
handling and processing. In fact, though Germany possesses no steel deposits either, it is one of the worlds
leading countries in the steel processing industry. The skills German businesses have developed here may
assist the Carbon industry to also achieve mass production levels. The Chemistry as well as Machinery &
Equipment industries also provide for the opportunity of fast growth. Chemical products play a major role in
handing graphite and carbon composites and carbon fibers require special machinery, a field Germany is
holding a world leading position. The aerospace industry, for a long time the only user and researcher of
Carbon, is well settled in Germany, providing for knowledge as well as demand. Further, some universities
have been identified as supporting research in the field of Carbon composites. Recently, the global concern
about CO2 emissions has led car manufacturers and renewable energy firms become interested in this
exceptional material. Both industries are world leading, very innovative, demanding and sophisticated.
Especially the car industry holds an economic position in Germany that is one of a kind. Both, BMW and
Audi believe in the materials value proposition. Their interest and efforts in carbon composites offer the
cluster new dimensions. With pressure for better and less cost intensive production ways, the Carbon
industry has good chances to get higher attention by the government.
Though all of these factors make the cluster sound like a true success story, there are still some challenges to
take. First of all, the ambition is remarkably high but there is no proof that Carbon specialists will really find
a way to use the material for line production. Without such achievement, the cluster will remain minor in
comparison to that of the already much farther developed Japanese. However, if there is a method, then it is
very likely that the consolidated forces of Carbon specialists and buyer industries will find the solution.
Important to notice, in order to do so collaboration is inevitable. BMWs joint venture with SGL Carbon is
going into the right direction but, arguably, not far enough. Under control of Ms. Klatten research and
findings are only for BMW use. Thus, the car manufacturer focuses too narrowly on competing against
players in its own industry. Instead, they should have identified the benefits of collaborative research with,
for example, Audi and Daimler in order to strengthen both, the German automotive industry and, in the
mean time, Germanys Carbon cluster. Unfortunately, this is not the case. Audi, member of the Carbon
Composites e.V. association, goes its own way, apparently leading to opportunity costs for both companies.
Still, SGLs move to build the Joint Ventures plant outside the cluster was strategically clever as it
guarantees them easier access to raw materials.
Another challenge is to attract government and universities to put higher efforts into the clusters
development. While it is remarkable that initiatives came and predominantly come from the private sector,
the German government has tools to facilitate for example information exchange and/or to decrease some
R&D risks by providing funds to the industry. Rather unlikely but beneficial would be to reduce the tax
burden and/or to allow for more DFI and thereby raise the clusters attractiveness. It may also support


  


promotion of the cluster and create higher awareness amongst industries. More government support would
also lead to higher awareness in the whole population. The more people know about the opportunities
Carbon incorporates, the more people may be interested to seek a career in the field. This trend would
encourage universities to enhance their efforts in researching for and developing the Carbon Composite
Cluster.



  


APPENDIX:

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