innovation for emerging markets - fujitsu.com

Germany’s Global Companies Innovation for Emerging Markets

Fujitsu Research Institute, Economic Research CenterDr. Martin [email protected]

Copyright 2011 FUJITSU RESEARCH INSTITUTE

Copyright 2011 FUJITSU RESEARCH INSTITUTE1

Outline

German Global Companies are leaders in globalization

…but they are not well-known as innovation leaders

German companies focus on mid-tech innovation through global product services, customer innovation

Emerging Market Challenge: Innovation at the top and bottom of the “Pyramid”


Why are German Experiences Relevant for Japan?

German Global Companies

are Leaders in Globalization

are Re-focusing on Emerging Country Growth


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

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

10

15

20

25

30

35

40

45

50

55

60

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Germany Japan

Consumption

Exports

Investment

Consumption

Exports

Investment

% %


0

5

10

15

20

25

30

35

40

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

20

40

60

80

100

120

140

160


New German Focus: Exports to Emerging Countries

Source: ©

FRI 2011. Data: IMF (2011)

German Exports by Region (Bn USD)Bn USD

Emerging &DevelopingCountries

Advanced Countries(ex. EU)Dev. AsiaU.S.

4

EU (right hand)

Bn USD (EU)

Emerging countries have become Germany’s major growth market


0

5

10

15

20

25

30

35

40

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

20

40

60

80

100

120

140

160


Japan: Emerging Countries even more Important

Source: ©

FRI 2011. Data: IMF (2011)

Japan Exports by Region (Bn USD)Bn USD


Advanced Countries (right hand)

Dev. Asia

U.S.

5

Bn USD (Advanced C.)

Emerging countries are Japan’s only real growth market


Why is Germany not Known as an Innovation-Leader?

Most German Global Companies are Mid-Size and Mid-Tech


Corp. R&D as % of GDP

Venture capital as % GDP

Triadic patents per millionpopulation

Scientific articles per millionpopulation

New-to-market productinnovations

Corp. non-technologicalinnovationCorp. collaboration

Patents with foreign co-inventors

Researchers/Employees

New Science & Engineeringdegrees

Science & Tech. Empl./Employment

Japan Germany Average

Germany is not an Obvious Innovation Leader

Source: © FRI 2011. Data: OECD (2010) – A New Approach to Innovation.

OECD Innovation Indicators for Germany & Japan

Index



German Global Companies are “Mittelstand”

German Global Companies are “Mittelstand”

German Global Companies are often privately-held SMEs (“Mittelstand”)

German Global Companies (“Hidden Champions”) are half the size of Japanese Global Companies (Japan: 2000 employees and 40 Bn yen revenue)

German Global Companies are Specialized

Industrial Goods Exporter (70%)

Business Services (11%)

Narrow markets/segments require global strategies

German Global Companies are Short on Capital

Privately held companies depend on banking finance

R&D needs to be financed by cash flow

R&D and innovation are structured around existing products

0

5

1015

20

25

3035

40

45

50

High-tech /Export

High-tech /VA

Mid-tech /VA

…and German Products are “Mid-tech”

Source: © FRI 2011. Data: OECD, IMD.

High-tech, Mid-tech Share of Exports & Value Added (%)

Japan

Percent

Germany US


Germany has only few high- tech industries

High-tech industries are highly R&D intensive (around 10% of sales)

Globally leading industries are Bio-Tech, Semiconductors, Pharmaceuticals, IT

Germany is strong in mid-tech industries

Mid-tech industries focus on complex products such as capital goods

Globally leading industries are machinery, cars, chemicals

How did German Global Companies Succeed?

Cost Control & Continuous Innovation

Global Customer Innovation


Process/Segment InnovationKnowledge Export

Contextual InnovationKnowledge Application

Production SegmentationVolume Markets

Product SpecializationCustomer Markets

New ProductsInternational Supply Chains

Product ServicesManagement Internationalization

Japan vs. Germany: Product vs. Customer Innovation


Product Innovation Customer Innovation

“Keiretsu” Firms “Mittelstand”Structure

Focus

Strategy Cost-Performance Value Added

Middle of the “Pyramid” Top/Bottom of the “Pyramid”

Growth Markets Global MarketsEmerging Markets

Japanese Firms German Firms

-5 .0 0 -3 .0 0 -1 .0 0 1 .0 0 3 .0 0 5 .0 0 7 .0 0 9 .0 0

A ll In d u s try

M a n u fa c tu rin g

C h e m ic a l

E le c tr ic a l

Tra n s p o rt E q u ip .

W h o le s a le & R e ta il

Tra n s p ., C o m m .

F in a n c e

G o v e rn m e n t

E d u c a t io n

H e a lth

H o u rs W o rk e dL a b o r Q u a lityIC T C a p ita l S e rv ic eN o n -IC T C a p ita l S e rv ic eT F P

9 .2

Growth Comes from “Old Industry” Innovation

Source: © FRI 2010, Data from EU KLEMS Database.

Germany Productivity Contribution to Value Added Growth(2003-2006; % Average)

12 All Rights Reserved, Copyright Fujitsu Research Institute 2010Copyright 2011 FUJITSU RESEARCH INSTITUTE12

TFP (Innovation)

Labor InputLabor QualityICT InvestmentNon-ICT InvestmentTFP (Innovation)

Total Factory Productivity (TFP Innovation)German “Old Industry” increases productivity by trading & value added services

-5 .0 0 -3 .0 0 -1 .0 0 1 .0 0 3 .0 0 5 .0 0 7 .0 0 9 .0 0

A ll In d u s try

M a n u fa c tu rin g

C h e m ic a l

E le c tr ic a l

Tra n s p o rt E q u ip .

W h o le s a le & R e ta il

Tra n s p ., C o m m .

F in a n c e

G o v e rn m e n t

E d u c a tio n

H e a lth

H o u rs W o rk e dL a b o r Q u a lityIC T C a p ita l S e rv ic eN o n -IC T C a p ita l S e rv ic eT F P

1 3 .3

… and not Investment as in Japan

Source: ©

FRI 2011, Data from EU KLEMS Database.

Japan Productivity Contribution to Value Added Growth(2003-2006; % Average)

13 Copyright 2011 FUJITSU RESEARCH INSTITUTE13

Non-ICT Investment

Labor InputLabor QualityICT InvestmentNon-ICT InvestmentTFP (Innovation)

Non-ICT InvestmentJapanese “Old Industry” increases productivity by investing in production processes

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Japan is a Leader in Global Knowledge Export

Royalties & License Fees Trade

Knowledge Export

Domestic R&D and (Product) Innovation

Export to Global Supply Chains (Knowledge Exploitation)

Germany

Japan

Bn USD

Export

Import


Export

Import

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

Germany is a Leader in Global Knowledge Application

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

Strengths of German Global Companies

Competitive Performance

Importance

Weaker Strongerthan the Strongest Competitor

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)

Multi-NationalCorporationsfocus on Global Product Segmentation

German “Hidden Champions”focus on Global Customer Demand

Note: Ranking based on German Company Customer Surveys.Source: Simon (2010) – Hidden Champions in the 21st Century. Copyright 2011 FUJITSU RESEARCH INSTITUTE16

German Global Companies in Emerging Markets

“Following the Customer”



Siemens: Focus on “Mega Trends” & Value Growth

Siemens in China90 JVs, 43,000 Employees16 R&D Centers, 4,000 Staff15% of Global Revenue, 20% Growth40% of Orders from Environment Portfolio

Siemens Global BaseMedical-Imaging

MRI Scanner

90% Made in China

60% Export from China

Wind Power

Evolving Global Base

Focused Portfolio: Industry, Energy, Healthcare

Source: Siemens Corporate Presentation (2010).

Siemens: Innovation in Emerging Markets

Operation Room X-Ray Scanner

Strong demand for low-cost X-rays

Indian engineers replaced high-end analog camera with simple digital cameras

Image & resolution enhancement by software

Software interface improvement

Higher value at 1/3rd the price

Technology transfer to high-end models (Reverse Innovation)

Siemens S.M.A.R.T:

Simple

Maintenance friendly

Affordable

Reliable

Timely to market

Siemens in India



German Companies Innovate for India’s Tata Nano

EngineBosch (Injection System)Mahle (Camshafts, Filter)Vibracoustic (Engine Mount)Conti (Fuel Pump, Fuel Sensor)Freudenberg (Sealing)

Electric SystemBosch (Starter, Alternator,

Body Electric Parts)BrakesBosch (Main Cylinders)

Gear SystemINA (Shift Elements)Freudenberg (Sealing)

UndercarriageFAG (Bearing)ZF (Torque Rod)Freudenberg (Sealing)

VentilationBehr (Ventilator, Aircon)Mahle (Filter)

Denso (Wiper)

German Parts in Tata’s Nano


Bosch: Tata Nano Project for Prestige, Relations, Learning

Cheapest Car, Newest Technology

New approach to reduce complexity based on advanced technology

World class environment standard (Euro IV)

Reengineering

Direct injection technology developed for Mercedes and BMW

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

“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)

Exporting Technology

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

0

5

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25

30

35

2003 2004 2005 2006 2007 2008 2009 2010

ROC (Heavy Investment; 25% R&D)

0

1

2

3

4

5

6

7

8

9

2003 2004 2005 2006 2007 2008 2009 2010

0

10

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30

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90

2003 2004 2005 2006 2007 2008 2009 2010


Bosch Ltd. (India): Results

Directors (further India Affiliations)(D) A. Hieronimus (MindTree; Outsourcing)(D) B. Bohr (ZF; Steering Systems)(D) B. Steinruecke (FAG; Bearings)(I) B. Muthuraman (Tata; Industries)(I) R. Karnard (Housing Devel. Finance Corp.)

(I) P. Chandran (BASF; Chemicals)

Sales (90% Automotive Products)

Overseas Sales (Automotive)

Mn INR

Mn INR

%

Source: © FRI 2011. Data from Bloomberg; Corporate Report.

(India)

Rational: Automatic Steam Ovens for Catering


Professional Steam Ovens (Self-Cooking Centers)

350 Mn Euro Revenue, 1058 Employees

8.5% 5Y YoY Growth, 34% ROC

84% Overseas Sales, 54% Global Market Share

Business Model

One customer group: Chefs

One product line: Food Heating

http://www.rational-online.com/CA_en/

Rational: Global Process-Oriented Management

Customer Process

Seminars

Kitchen Planning

Product Training, Product Optimization

Certified Engineer Support

On-site Support from Chefs


After Sales

Process

Product.& Supply

Process

Sales &

Marketing

Process

Integrat.

Innovation

Process

Service

Process

After Sales Process200 Rational-Chefs Communicating with

Customer Chefs

Product ProcessManager as

Process Contractors

Sales Process

Customer Planning & Training Product OptimizationInnovation Process

All-Segment Customer Innovation

Service ProcessAll-Segment

Engineer, Chef On-site Service

http://www.rational-online.com/CA_en/

Summing Up: German Innovation for Emerging Markets

Demand for German “Mid-tech” Machines is booming in emerging markets

Companies innovate by “Following the Customers” – augmenting products and adapting services

In emerging countries, opportunities are seen at the “Top and the Bottom of the Pyramid” – Quality, service and green technology at the (high-price) top – High-end technology application for the (low-price) bottom

Emerging Market Innovation (R&D, process innovation) feeds into global products and operations


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