Automobile Industry in Germany

The automotive industry in Germany is one of the largest employers in the world, with a labor
force of over 820,500 (2018-2019) working in the industry.
Being home to the modern car, the German automobile industry is regarded as the most
competitive and innovative in the world, and has the third highest car production in the world,
and fourth highest total motor vehicle production. With an annual output close to six million
and a 31.5% share of the European Union (2017), German-designed cars won in the European
Car of the Year, the International Car of the Year, the World Car of the Year annual awards the
most times among all countries. The Volkswagen Beetle and Porsche 911 took 4th and 5th
places in the Car of the Century award.

SWOT analysis
Strengths
Europe's Biggest Automotive Market
Germany is Europe's number one automotive market in production and sales terms; accounting
for around 30 percent of all passenger cars manufactured and almost 20 percent of all new
registrations. Germany also boasts the largest concentration of OEM plants in Europe. There
are currently 40 OEM sites located in Germany. Ger- man OEM market share in Western Europe
was more than 52 percent in 2017.
Manufacturing Leader Germany
German automobile manufacturers produced over 16.4 million vehicles in 2017. Sixteen of the
world's 100 top automotive suppliers are German companies. Germany is the European car
production leader: some 5.65 million passenger cars — and 315,750 commercial vehicles —
were manufactured in German plants in 2017.

Premium Market Hub

Germany is the world's premium car production hub. Of all premium branded vehicles
produced globally, more than 70 percent are German OEM- manufactured. Of all vehicles
produced globally, almost two thirds of vehicles were produced in Europe (38 percent were
made in Germany). Within Europe, more than 80 percent are German OEM- badged vehicles —
almost 70 percent of these vehicles are made in Germany. The western European light vehicle
production sector is predominantly premium sector focused. As a result, the scale and range of
production is expanding significantly. Production of premium segment cars will continue to
grow (currently 38 percent share of western European light vehicle production).

Strong R&D Investment

German automotive company investment in research and development remains strong as
manufacturers seek to maintain the competitiveness of vehicles "Made in Germany." In 2017,
German automotive companies spent almost EUR 22 billion on internal R&D projects; more
than any other domestic manufacturing sector. More than one third of Germany's total
manufacturing industry R&D expenditure is spent by automotive manufacturers and suppliers,
with R&D budgets expected to rise. Germany's automotive companies employ the largest
number of research personnel in the manufacturing sector. With 114,000 researchers (full-time
equivalent), automotive companies employ more than one quarter of the total R&D workforce
in Germany's private economy.

Weakness
US-China Trade war
The bill for damages from the U.S-China collision could be reflected in new growth figures that
could show that Europe’s economic motor, Germany, is stalled or shrinking. Beyond that,
economists say there are signs that years of declining unemployment since the depths of the
Great Recession and the euro zone debt crisis may be ending. And if the trade wars escalate to
include higher U.S. tariffs on cars made in Europe, the picture could look even worse.
Slumping sales
Things changed rapidly in mid-2018. The German industry was hit by slump in sales in the third
and fourth quarters of last year. Worse, these clouds are gathering just when the industry must
find huge sums to invest in new technology, if it is not to be overrun by competition from
Silicon Valley and upstart Chinese manufacturers. Daimler has already cut dividends, BMW has
issued profit warnings for the first time in many years, while Audi is cutting production and
firing 10 percent of managerial staff. The shares of all three big German carmakers now trade
below book value, meaning markets expect them to burn through capital in the coming years.
The most immediate threat comes in the form of growing protectionism. In the last decades,
Germany’s car industry has gone global, in terms of production as well as sales. BMW now has
some three dozen factories on four continents. The company doubled its revenues in the last 10
years, but at the price of increased vulnerability. Donald Trump’s arrival in the White House
turned the tide of free trade: He cancelled negotiations on new trade agreements and
threatened to launch trade wars with both China and Europe. For a firm like BMW, which
makes SUVs in the US to sell in China and in Europe, this could disrupt their entire business
model. China’s 40 percent retaliatory tariffs on US car imports have already cost the Bavarian
company €300 million ($340 million). The US president now has 90 days to decide whether to
impose 25 percent tariffs – up from 2.5 percent – on automotive imports to the United States.
No one knows if Trump’s threats are just a ploy to force trade concessions from the European
Union. But they have the potential to cost carmakers billions of dollars. Add to this the
increasing possibility of Britain crashing out of the EU without a trade deal. Overnight, a hard
Brexit could impose trade barriers with Germany’s fourth-largest market for cars. Automakers
also have important investments in Britain: BMW owns both Mini and Rolls Royce.

Chinese slowdown
Just as worrying is the slowdown in the Chinese market: new car sales shrank there by 2.8
percent last year. Volkswagen predicted 4 percent growth in Chinese sales in 2018; it ultimately
managed 0.5 percent. With overall Chinese economic growth lower than it has been in decades,
2019 is unlikely to see much recovery. This is very serious for an industry – and the entire
German economy – which has grown fat on exports to China. Herbert Diess, VW CEO, was not
exaggerating when he said recently that “the fate of the Volkswagen Group depends on China.”
With this in mind, VW is doubling down on its involvement in China, investing heavily in R&D
and in local technology partnerships. Technology may prove another stumbling block in China.
Last year, the country imposed quotas on carmakers, requiring them to sell a percentage of
hybrid and all-electric vehicles, or face heavy fines. Domestic manufacturers may be in a better
position to fulfil the huge Chinese demand for all-electric cars. This is perhaps the most
daunting challenge of all for the industry. Germany’s car giants bet so heavily on diesel – helped
in part by falsified emissions data – that they failed to grasp the changes on the horizon. Now
manufacturers are rushing to convert their fleets to hybrid and all-electric models. But the
promised all-new electric models – among them the Audi E-Tron and Daimler's EQ series – will
not reach showrooms for months, if not years. Even then, most new offerings will be hybrid
models, combining electric and combustion engines. There will no newly-designed, all-electric
Mercedes on sale until late 2021. BMW is pinning its hopes on the all-electric i4 sedan, but this
too will not enter production until 2021. For the moment, Germany has been soundly beaten in
technology. Experts say Tesla is two or three years ahead of its German rivals in engineering
innovation. Sales reflect this difference: in the United States, the California firm is outselling all
its rivals combined in electric cars. In the luxury class, Tesla even outsells combustion-engine
series like the BMW 7-series, the Mercedes S-class and the Porsche Cayenne.

Raise at least €100 billion

Tesla is not the only threat to come out of California. Tech giants like Uber, Apple and Google
are investing massively in the development of self-driving cars. Google subsidiary Waymo alone
may have as much as $40 billion to invest in autonomous vehicle technology.

Now realizing the danger, Germany’s automotive giants are gearing up to invest huge sums in
developing electric and self-driving cars, probably around €40 billion in the next three years.
Volkswagen’s four-year budget for electric vehicles amounts to around €30 billion. VW CEO
Diess says the transformation of the industry could cost German firms around €100 billion.

The sums involved are so enormous that carmakers – even diehard rivals – have been forced
into new forms of cooperation. Volkswagen sources say the company has even contemplated a
partnership with its great Japanese rival Toyota. The company already has a wide-ranging
alliance with Ford to develop electric and self-driving technologies, which could ultimately see
Ford e-cars using a Volkswagen platform.

The urgency of the situation has even led BMW and Daimler into close collaboration. On Friday,
the two firms are expected to announce a new joint venture in mobility services. They already
have already merged their car-sharing subsidiaries.

The German giants are also changing their corporate structures, trying to become leaner, less
hierarchical and more flexible. Volkswagen will soon float its bus and truck division, possibly
raising as much as €20 billion. Daimler will convert to a holding company structure, with the
possibility of demergers in the years to come.

Germany’s car industry has at last awoken to the urgency of the situation, placing its bets on
new products, new structures and enormous technological investment. But with economic and
geopolitical risks increasing, this may not be enough to save it from a perfect storm.
Opportunity
Innovative Production Location
German cars continue to enjoy a globally positive image and are in high demand across the
world. A recent Ernst & Young study of 300 companies active in the European automotive
sector (15 percent OEMs and 85 percent suppliers) find Ger- many to be the most innovative
automotive hub in international comparison. Eighty-one percent of those companies surveyed
consider Germany to be the most competitive hub in terms of innovative power — ahead of
Japan and South Korea who polled 65 percent and 61 percent respectively.

Growing Premium Market

Globally, the premium market segment will grow at a much faster rate than the total passenger
car segment in the next decades. Growth can be mainly attributed to growing international
demand for high-value, premium small- and compact-sized cars as well as premium SUVs. The
German automotive industry is the leading producer of premium cars worldwide. Almost all
German and Germany-based manufacturers have already launched or intend to launch new
products meeting premium segment demand. The know-how based on the country's
automotive manufacturing tradition will further strengthen Germany as a leading international
automotive manufacturing location.

Sustainable Mobility
Automotive engineers in Germany are hard at work improving internal combustion engine
energy efficiency, developing alternative drive technologies (including electric, hybrid, and fuel
cell cars), and adapting lightweight materials and electronics. Carbon emission reduction
targets, smart traffic management, and the government's electric mobility initiative are major
drivers for future mobility growth. According to McKinsey, the overall market value for new
vehicles with optimized combustion engines is set to reach between EUR 280 billion and EUR
330 billion by 2020. Impressive developments have already been made in developing smaller,
highly charged-up "homogeneous combustion" engines and dual clutch transmissions (DCTs).
Overall market potential for efficient drive systems is valued at between EUR 325 billion and
EUR 500 billion through to 2020.

Car Connectivity
The demand for connected cars is set to increase significantly, nowhere more so than in the
premium segment. Facilitating a raft of innovative safety, comfort and information services,
smart technologies are revolutionizing the driving experience. According to a trend study
conducted by McKinsey, the number of smart cars will increase by 30 percent annually over the
next years. By 2020, one in five cars will be connected to the internet — 50 percent of these
vehicles will belong to the premium segment. Germany's industry strength in electronic
technologies and software solutions is crucial for technological advancement in this sector.

New Lightweight Materials for the Automotive Industry

Lightweight construction is a key enabling technology for manufacturing the cars of tomorrow
and addressing the challenges of digital transformation, electric mobility and energy and
resource efficiency. McKinsey reports that vehicle manufacturers will need to increase
lightweight component levels from 30 percent to 70 percent by 2030 in order to compensate
for electric drive weight increases, more efficient engine technology and C02 reduction goals.
Germany boasts a lightweight construction cluster network that covers the complete industry
value chain. Two exemplary initiatives are the ARENA2036 platform and the Open Hybrid
LabFactory. Arena2036 is the largest and leading research platform for mobility in Germany.
The entire value chain of tomorrow's fully digitalized vehicles is being rethought and
implemented as part of the initiative. Since the project launch in 2013, the research campus
has focused its activities in core projects in four research areas including functional
integrated lightweight design. Partner competences are anchored in a variety of disciplines
that range from simulation and lightweight construction to production technology and
ergonomics. The Open Hybrid LabFactory carries out research into new materials and
production techniques to help make serial production of cars more environmentally
friendly. Production and production technologies suitable for mass production will be
developed for the economically and ecologically sustainable production of hybrid
lightweight components using metals, plastics and textile structures.
Threat
Immense structural change
German automotive industry has taken a step back to reflect on its own future. For
example, Volkswagen CEO Herbert Diess recently estimated that German carmakers have
but a 50:50 chance of pioneering the mobility of the future. The reason, he told the
German business newspaper Handelsblatt  in late August was that the industry is currently
facing an immense structural change. Diess argued that his pointing out this uncomfortable
fact was based on realism, not pessimism – and he is not alone in this assessment of the
situation in the home of the Autobahn. If German auto manufacturers and suppliers lose
importance in the future, it could have a deep impact on the German economy. The auto
industry is a key economic factor; some would even say the most important one. Taken as
a whole, auto manufacturers and suppliers in Germany, as of recently, employ more than
820,000 people, not to mention the thousands of jobs that are directly dependent on cars,
such as auto-repair shops, car dealerships and the roughly 15,000 gas stations across
Germany. At the beginning of last year, the research service of the German Bundestag
calculated a total of 2.15 million “car-dependent” jobs in Germany. That accounts for
roughly 5 percent of all individuals employed in the country. According to Germany’s
Federal Office of Statistics, cars and trucks are also the country’s most important export,
ahead of engine building and chemical products. The auto industry’s share of total gross
value added in Germany is 4.5 percent. In other words, there’s a lot to lose. All this piles on
in a moment of automotive history: the German industry is only one of many facing deep,
fundamental changes. A number of auto executives are reiterating the formula predicting
that the change in the industry over the next five to ten years will be more drastic than in
the last 50. This is due, in large part, to three parallel developments putting automakers
and suppliers, in particular, in a vice grip.
On the one hand, there is the transformative shift towards electromobility, which is
spurred on by challengers like the US-based electric carmaker Tesla, but also by
increasingly rigid European regulations on carbon dioxide emissions. German car
manufacturers are feverishly working on new electric models. Indeed, it’s no coincidence
that Mercedes, BMW and Audi presented new electric automobiles – or at least “future
studies” – one after the other; these products are set to appear on the market gradually,
starting next year. Volkswagen has designated the start of the coming decade as the
beginning of its electric offensive. Today, German carmakers offer 30 different electric
models; in 2021, the plan is to raise that number to more than 100.

Changing needs of consumers

At least in industrialized countries, there are more people interested in driving cars than
people interested in actually owning one. Today, none of the leading manufacturers
operates without the keywords “car sharing” and “mobility services,” which can be
accredited to the success of companies such as the American ridesharing service Uber.
The foreseeable magnitude of the impact of these changes was confirmed by a recent
study conducted by the strategy consulting firm Oliver Wyman on behalf of the German
Association of the Automotive Industry (VDA), an interest group representing German
manufacturers and roughly 600 parts suppliers. The study’s strategic advisors had both
good and disturbing news for the automotive industry. On the positive side, growing
demand is estimated to prompt a 30 percent rise in global car production, to around 123
million vehicles by 2030. Value creation is set to grow at a slower pace, by roughly 27
percent to reach €1.31 billion in the same time frame. There is no doubt that there will be
opportunities for growth.

Structural Changes
By the end of the coming decade, 25 percent of cars sold will have an electric engine; today,
depending on the country, that share is between zero and a maximum of two percent. In
addition, value creation will shift further towards Asia, because markets there are not as
saturated and customer demand is still high.
The transformation underway in the automotive industry is more drastic than ever before, and
it is taking place on all three levels – among customers, in the production process and in the
products themselves, all at the same time.
STEEPLE analysis
STEEPLE analysis allows businesses “to anticipate future trends by considering the macro-
environment in which a company operates, enabling it to determine the factors that will
influence it in the coming years
The STEEPLE analysis looks at the operational environment of a company or industry. According
to Business Environment: Managing in a Strategic Context, an environment is defined as:
“anything outside an organization which may affect an organization’s present or future
activities. Thus, the environment is situational – it is unique to each organization” (Kew and
Stredwick 2005). The STEEPLE analysis is one of the common tools used by commercial
businesses to analyze this environment. STEEPLE analysis has been frequently compared with
and paired with the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.

Socio-cultural
Social forces influence our attitudes, interests, and opinions, moreover, create
our behaviour and ultimately what we purchase. Trends’ changes have a correspondingly direct
impact on enterprises. These factors contain the structure of the population, falling
rates, competition, an increase of global population, traditions, level of education, cultural
diversity and standards. More examples of Social and cultural factors affecting business.
Technological
Technological advances have greatly changed the manner in which businesses operate.
Nowadays technological progress created a society which expects instant results. Here we can
mention new technologies, absorptive capacity for innovation, globalization. New technologies
shorten Product life cycle and increasing demand for new products. This revolution has
increased the rate at which information is exchanged between stakeholders. A faster exchange
of information can benefit companies as they are able to react quickly to changes. More
examples of Technological factors affecting business.

Economic
National interest rates and fiscal policy is set around economic conditions, besides has influence
on the purchasing power of consumers and the structure of their expenditure. These factors
include: gross domestic product (GDP) creating by demand, stock quotes, currency rate
fluctuations, rate of inflations, market substitutive and
Complementary, tax policy, price changes, revenues, savings and level of unemployment. More
examples of Economic factors affecting business.
 
 
 
Environmental
Environmental protection legislation, pollution, waste management and disposal, clean air and
water, energy-saving technologies, attitudes towards ecology in society. More examples
of Ecological factors affecting business,

Political
 Factors could create plenty of advantages and opportunities for organizations. These factors
include: political situation, political stability, state interference, market regulations, trade
agreements, tariffs or restrictions, taxes, lobbying and clarity of the law. More examples
of Political factors affecting business,
Legal  
(a subset of above mentioned political factors) involve all regulatory and law determinants that
can negatively or positively affect results of market actions and decisions
of management of company functioning in particular country. International companies must
analyze and identify those factors (legal environment) independently for every state they
function. More examples of Legal factors affecting business.

Ethical factors
Involve duties, morality, integrity, behaviour, what is good and bad for company, employees
and society as a whole. More examples of Ethical factors affecting business.
First doc
Potential Competitors
Volkswagen (VW) is a German Automaker company that was founded in the year 1937. As one
of the largest vehicle manufacturers in the world, VW has an average annual production output
of 12 million units leading to annual revenue of approximately 150 billion Euros. Its brands
include the Seat and Skoda. It also has full ownership of the exotic Audi, Bentley, Porsche,
Bugatti, Ducati, and Lamborghini subsidiaries. Being a global company, it employees around
650,000 employees and receives competition from the following global brands. Following are
the top Volkswagen competitors

Toyota
General Motors
Ford
Renault Nissan
Hyundai
Daimler
BMW

Toyota
Toyota Motors Corporation is a Japanese company that manufactures cars of Toyota brand. It
owns a 17% share in Subaru Corporation and a further 8% stake in Isuzu industries. In recent
years, its unit production rate has been approximately 12 million cars with returns being around
250 billion dollars.
By mid-2014, Toyota was the market leader in Japan in terms of market capitalization. Hence it
is one of the strongest Volkswagen Competitors in Japan and other Asian countries. Its
employees are 365,000 distributed around the world thereby facilitating sales of around 10
million car models and over 5 million nameplates in a year. Some of its models include
Daihatsu, Hino, the Toyota AA and Ranz among others.

General Motors
Founded in the early 1900s, General Motors (GM) is an American company that manufactures
and sells vehicles and their spare parts. Its headquarters in Detroit Michigan
controls operations in more than 38 countries. According to recent reports, General Motors
makes around 9 million vehicles sales globally thus making around 170 billion dollars in terms of
revenue and an operating income of around 10 billion dollars; this is made possible by
its218,000 professional staff well distributed around the world.
Some of GM’s vehicle brands include; Chevrolet, Oakland, Hummer, Opel, Saturn and Vauxhall
just to mention a few. General motors is also known as a smart marketer and rivals the
marketing of Volkswagen. It is one of the strongest Volkswagen Competitors in US.
Ford
This is also an American company that was founded and incorporated in the year 1903. Like
other automobile companies, Ford manufactures vehicles (Lincoln and SUV brands)and
tractors. Being the second Largest in the USA after GM motors, Ford produces and sells more
than 6 million car units in a year.

Renault Nissan
Renault Nissan is basically a partnership between Renault and Nissan companies that came to
be in the year 1999. This partnership has employed close to 480,000 staff who directly
contribute to over 8 million annual car sales. Some of Renault Nissan car brands
include; Mitsubishi, Renault, Infiniti, Nissan, Lada, Datsun and Alpine among others.
In 2016, Renault Nissan became the first ever manufacturers of Electricity powered cars and
more than 245,000 units were sold the same year. Averagely, Renault Nissan partnership
manufacturers and sales more than 8 million cars every year

Hyundai
Hyundai is a South Korean company that was founded in 1947 and manufactures not only
automobiles but also heavy machinery in Aerospace, Defense, and Engineering sectors. Being a
global multinational, Hyundai has a net operating income of 12 billion dollars.
Its annual revenue is approximated to be 219 billion dollars and employs more than
270,000 people globally. By the end of 2016, Hyundai made approximately 4.9 million vehicle
sales. Some of its brands include; Aslan, Eon, Elantra, and Azera among others. Hyundai is one
of the strongest Volkswagen Competitors in the Asian market.

Daimler
Daimler is a British automobile company that was founded in the year 1896. According to end
of last year report, its annual Production output was around 4 million vehicles leading to an
overall revenue of 150 million Euros and 9 Billion euros in profits. With slightly below 20,000
employees, Daimler specializes in the manufacture of the jaguar, Whitney, Mark II sports saloon
and Daimler DS420 limousine brand of cars. Its other subsidiaries include
Smart, Mercedes Benz, and Mercedes AMG

BMW
BMW is a German Motorcycle and Automobile Company that was founded in 1916. This brand
is preferred mostly by high-end clients because of its quality and pricing. Total production
output is estimated to be 2.6 million vehicles annually out of which 2.2 million are sold to
generate revenue of approximately 100 billion euros.
An average number of BMW employees around the world are estimated to be 125,000. Most
BMW cars are marketed under the brand name ‘BMW’. Others include; Rolls Royce, BMW I,
touring Formula 1 cars and BMW M among others. Audi being a luxury car brand from the
house of Volkswagen, has the highest competition from BMW, making BWM one of the strong
Volkswagen brands in premium sports car segment.
Competitive Advantage
Audi has a significant competitive advantage over rivals BMW and Mercedes-Benz, that’s
because it can use the global buying power of parent Volkswagen group. This association not
only comprises six additional brands, but also VW’s regional procurement organizations in
Brazil, Mexico, South Africa and China. Apart from this it employs dedicated & passionate 70k
people around the globe who continuously work to make it a premium automobile worldwide.
Where as Strong parent company Daimler Inc. of Mercedes has several other product lines (E.g.
Public utility buses, trucks & Vans)  and business units like Daimler Financial services have
helped Mercedes in various markets to establish itself and get support from these in terms of
technological support, Dealership financing & management. Mercedes has started aligning its
sales & marketing plans with customer requirements i.e. they are evolving themselves from
product centric to customer centric organisation meant for delivering tailored products to
individuals representing their lifestyle. Mercedes have a total of 38 plants of which 23 plants (9
Vehicle plants, 9 powertrain plants, 5 car assembly plants) worldwide are company-owned
plants. All plants are situated in strategic locations which are helping them in targeting the
developing nations and at the same time will keep their operational costs under control.The
most famous Ford motors have approximately 38000 active patents which are helping the
company in the conduct of its business and it keeps the company technologically ahead of peer
companies in the industry. Ford has large product portfolio in the developed nations which are
helping the company in having deep knowledge of these markets. It has 68+ plants worldwide
which are helping the company in keeping the price of their offerings low as compared to the
peer companies in the market.Volkswagen Handling world’s strong automotive brands and co-
creating their efficient ecosystem and operational support system have helped the company in
being competitively ahead of its peer companies in the industry. With such
broad product portfolio of each brand under the umbrella brand architecture of the group the
financial management cannot be doubted. Economies of scale in its various operational,
manufacturing & production processes has helped the brand in keeping its operational cost low
thereby spending more on branding and advertising activities.

ADD International
Strategies
Geographic Influences
Production and Destruction
Cars consume a lot of energy before they ever make it to the open road. Automotive
production leaves a giant footprint because materials like steel, rubber, glass, plastics, paints,
and many more must be created before a new ride is ready to roll.
Similarly, the end of a car’s life doesn’t mark the end of its environmental impact. Plastics,
toxic battery acids, and other products may stay in the environment. Fortunately, junkyard
pile-ups are becoming much smaller than they were in the past. About three-quarters of
today’s average car, including the bulk of a steel frame, can be recycled. Production,
recycling, and disposal costs to the environment are difficult to quantify and largely beyond
the control of most consumers. It's also true that most of an automobile's environmental
impact, perhaps 80 to 90 percent, will be due to fuel consumption and emissions of air
pollution and greenhouse gases that climate scientists say are driving global warming.
Fortunately, the level of that impact is very much under the control of the driver.

Fuel Costs
Petroleum products raise environmental red flags even before they are burned. Extracting
them from the earth is an energy-intensive process that can damage local ecosystems.
Shipping fuels can also consume a lot of energy, and creates an occasional environmental
disaster such as an oil spill. As world demand rises, and unconventional fuel sources, such
as oil sands, become more economically viable, the ecological impacts of petroleum
extraction might also increase dramatically. That’s one more reason why fuel efficiency is so
important. It's also partly why electric-powered vehicles can help reduce environmental
impacts, because they don't burn fossil fuels.

Air Quality
Vehicles are America’s biggest air quality compromisers, producing about one-third of all U.S.
air pollution. The smog, carbon monoxide, and other toxins emitted by vehicles are especially
troubling because they leave tailpipes at street level, where humans breathe the polluted air
directly into their lungs. That can make auto emissions an even more immediate health
concern than toxins emitted high in the sky by industrial smokestacks.

Major products and industries

Germany is Europe’s largest national economy and ranks fourth as the largest economy by
nominal GDP in the world. It is also the fifth largest economy in the world by GDP (PPP).
Germany is among the founders of the European Union and the Eurozone. The economy of the
country is based on a social market economy. The country has one of the most skilled
workforces in Europe especially in its major industries including car manufacture, machinery,
household equipment and chemicals. Germany is also the 3rd largest agricultural producer in
Europe making it possible to cater to 90% of its nutritional needs.
Overview Of The Economy Of Germany
Germany has a GDP of $4.0 trillion by PPP and nominal GDP of $3.5 trillion. The nominal GDP
ranks fourth while the GDP based on purchasing power parity (PPP) ranks 5th. The GDP had a
positive growth rate of 1.7% in 2015. GDP per capita based on PPP is estimated at $48000 and
$42000 by nominal GDP. About 54.1% of the GDP is used in household consumption making it
the largest GDP composition by end users. Services are estimated to contribute 69.1% to the
GDP followed by industries at 30.2% and agriculture at 0.7%. Germany has one of the lowest
inflation rates of about 0.5%, an unemployment rate of 4.2%. 15.5% of the population lives
below the poverty line. The laborforce is composed of 45 million people and 73.8% are engaged
in service industry, 24.6% employed by industries and 1.6% working in the agricultural sector.
The public debt is estimated at 72% of the GDP. Germany’s revenue is at $1.1 trillion against
expenses of $1.1 trillion. The country’s foreign reserves are estimated to be $0.4 trillion.

Main Industries Of Germany

Germany is dominated by manufacturing industries including automotive, chemicals, metals
such as iron and steel, electrical equipment, coal, ships, machine tools, high precision
equipment, optics, pharmaceuticals, textiles, and plastic goods.

Current Economic Condition

Growth is set to slump this year on softening domestic demand and a flagging external sector.
That said, a tight labor market and higher public spending should buttress consumption and, in
turn, the overall economy. Risks are tilted to the downside due to ongoing global trade
tensions, slowing Chinese growth and Brexit uncertainty. Focus Economics Consensus Forecast
panelists expect the economy to expand 0.7% in 2019, which is unchanged from last month’s
forecast, and 1.1% in 2020.
Infrastructure

Also difficult to quantify, another associated impact of cars is the building of roads to support
them, as well as the urban sprawl that tends to follow in their wake. This issue can be difficult
to tease out of other factors, such as population growth and resource consumption, but it is
also not easily addressed by technological advancements like fuel efficiency and electric
propulsion. Road building has a big impact on emissions and wildlife.

Demographic Trade Barriers

Germany's regulations and bureaucratic procedures can be a difficult hurdle for companies
wishing to enter the market and require close attention by U.S. exporters. Complex safety
standards, not normally discriminatory but sometimes zealously applied, complicate access to
the market for many U.S. products. U.S. suppliers are well advised to do their homework
thoroughly and make sure they know precisely which standards apply to their product and that
they obtain timely testing and certification.
Cultural Analysis
The people, language, and traditions are what make the German culture unique. It has had a
key role in the history of Europe, and not only. English speakers call it Germany, Germans
themselves call it Deutschland. Germany is known as the country of poets and thinkers.
German culture has been influenced and shaped throughout Germany‘s rich history once as an
important part of The Holy Roman Empire, and later on as one of the most stable economies in
the world. Whereas today, Germany is home to 82.2 million people including Germans and
minorities of other nationalities that respect each other, and together make Germany a country
of values, unique celebrations, and customs. In this article, we have given some facts about the
German culture, which has its roots at the beginning of the first millennium, though through
time it has lost and gained different traits from the historical events that have shaped not only
Germany but the whole old continent of Europe. Firstly, here are some facts about today’s
Germany. Though English-speaking countries call it Germany, Germans themself call it
Deutschland. It is Germania in Latin, l’Allemagne in French and Almanya in Turkish. Berlin is its
capital, but Hamburg, Munich and Cologne are also among the main cities of Germany. It is
estimated that the average woman in Germany lives around 83 years, while the average man
lives 79 years. The main language is German and main religion is Christianity. There are a lot of
stereotypes about Germans, as that they drink a lot of beer (which is true), they are
hardworking and punctual (which is also true), and that the rate of unemployment in Germany
is very low (true again).

Language
Over 95% of the residents of Germany speak the German language, whether it is the standard
German or any of its dialects. However, the German state has recognized four minority
languages, which are the Upper and Lower Sorbian, Romani, Danish as well as North and
Saterland Frisian. Because of the high number of immigration, there are also languages spoken
by a sizable number of communities, as Turkish, Kurdish, Russian, Greek. Albanian, Polish etc.

Religion
In Germany a percentage of 65 to 70 of people recognize themselves as Christians, 29% of
which as Catholics. There is also a Muslim minority of 4.4%. A number as high as 36% do not
identify themselves as having any religion or belong to another than Christianity or Muslim.

Symbolism
The German symbols have changed through different phases in history alongside the events
that have shaped its culture and traditions. The eagle was part of the Holy Roman Empire,
which after Prussia’s victory over Austria in 1886 has been shared by two different states.
Martin Luther and luminaries as Immanuel Kant, Johann Gottfried von Herder and Johann
Wolfgang Goethe are also important figures and very contentious symbols. Today the most
known symbol of the country is its black, red and gold flag

Social Institutes
Culture has become one of the most important business topics of 2016. CEOs and HR leaders
now recognize that culture drives people’s behavior, innovation, and customer service: 82
percent of survey respondents believe that “culture is a potential competitive advantage.”
Knowing that leadership behavior and reward systems directly impact organizational
performance, customer service, employee engagement, and retention, leading companies are
using data and behavioral information to manage and influence their culture.

Culture is a business issue, not merely an HR issue. The CEO and executive team should take
responsibility for an organization’s culture, with HR supporting that responsibility through
measurement, process, and infrastructure. While culture is widely viewed as important, it is
still largely not well understood; many organizations find it difficult to measure and even more
difficult to manage. Only 28 percent of survey respondents believe they understand their
culture well, while only 19 percent believe they have the “right culture.” Culture can determine
success or failure during times of change: Mergers, acquisitions, growth, and product cycles can
either succeed or fail depending on the alignment of culture with the business’s direction.

Informal Trade Barriers

Natural barriers to trade can be either physical or cultural. For instance, even though raising
beef in the relative warmth of Argentina may cost less than raising beef in the bitter cold of
Siberia, the cost of shipping the beef from South America to Siberia might drive the price too
high. Distance is thus one of the natural barriers to international trade. Language is another
natural trade barrier. People who can’t communicate effectively may not be able to negotiate
trade agreements or may ship the wrong goods.
DOC 5
Strategic Planning

The German automotive industry acts globally. An important key to success of the German
automotive industry is its strategy of internationalization. The export figures and numbers of
produced passenger cars abroad show that trade with foreign countries and the production
abroad are crucial for the German automotive industry. The German automotive industry was
able to assert itself against international competition in recent years. In the largest car markets
such as Western Europe, China and the U.S., German companies were able to increase or at
least maintain their share of the licensing of new passenger cars. Twenty 9.4 5.7 15.1 0 2 4 6 8
10 12 14 16 Production abroad Domestic production Total production million passenger cars 20
Latgale National economy research years ago, following the economic boom of German
reunification, the automobile sector in Germany slid in a depression. Experts and market
observers had predicted a negative future of the German automobile industry then. In this light,
the positive development since then is noteworthy. This success was achieved because the
product range fit the demands of the consumers. Passenger cars made by German corporate
brands are considered as world leaders in safety, capacity, comfort, diversity, design, reliability
and image. (Deutsche Bank Research, 2014) The globalization strategy of the German
automotive industry is based on a two pillar-strategy: export and localization.

Entry Modes
Exporting
Exporting is a typically the easiest way to enter an international market, and therefore most
firms begin their international expansion using this model of entry. Exporting is the sale of
products and services in foreign countries that are sourced from the home country. The
advantage of this mode of entry is that firms avoid the expense of establishing operations in the
new country. Firms must, however, have a way to distribute and market their products in the
new country, which they typically do through contractual agreements with a local company or
distributor. When exporting, the firm must give thought to labeling, packaging, and pricing the
offering appropriately for the market. In terms of marketing and promotion, the firm will need
to let potential buyers know of its offerings, be it through advertising, trade shows, or a local
sales force.
Among the disadvantages of exporting are the costs of transporting goods to the country,
which can be high and can have a negative impact on the environment. In addition, some
countries impose tariffs on incoming goods, which will impact the firm’s profits. In addition,
firms that market and distribute products through a contractual agreement have less control
over those operations and, naturally, must pay their distribution partner a fee for those
services.
Because the cost of exporting is lower than that of the other entry modes, entrepreneurs and
small businesses are most likely to use exporting as a way to get their products into markets
around the globe. Even with exporting, firms still face the challenges of currency exchange
rates. While larger firms have specialists that manage the exchange rates, small businesses
rarely have this expertise. One factor that has helped reduce the number of currencies that
firms must deal with was the formation of the European Union (EU) and the move to a single
currency, the euro, for the first time. As of 2011, seventeen of the twenty-seven EU members
use the euro, giving businesses access to 331 million people with that single currency.“The
Euro,” European Commission, accessed February 11,

Acquisitions
An acquisition is a transaction in which a firm gains control of another firm by purchasing its
stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a
purchase price. In our increasingly flat world, cross-border acquisitions have risen dramatically.
In recent years, cross-border acquisitions have made up over 60 percent of all acquisitions
completed worldwide. Acquisitions are appealing because they give the company quick,
established access to a new market. However, they are expensive, which in the past had put
them out of reach as a strategy for companies in the undeveloped world to pursue. What has
changed over the years is the strength of different currencies. The higher interest rates in
developing nations has strengthened their currencies relative to the dollar or euro. If the
acquiring firm is in a country with a strong currency, the acquisition is comparatively cheaper to
make. As Wharton professor Lawrence G. Hrebiniak explains, “Mergers fail because people pay
too much of a premium. If your currency is strong, you can get a bargain.”“Playing on a Global
Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home,”
New, Wholly Owned Subsidiary
The proess of establishing of a new, wholly owned subsidiary (also called a greenfield venture)
is often complex and potentially costly, but it affords the firm maximum control and has the
most potential to provide above-average returns. The costs and risks are high given the costs of
establishing a new business operation in a new country. The firm may have to acquire the
knowledge and expertise of the existing market by hiring either host-country nationals—
possibly from competitive firms—or costly consultants. An advantage is that the firm retains
control of all its operations. 

Organizational structure

The Volkswagen Group is one of the leading multibrand groups in the automotive industry.
The Company’s business activities comprise the Automotive and Financial Services divisions.
All brands within the Automotive Division – with the exception of the Volkswagen Passenger
Cars and Volkswagen Commercial Vehicles brands – are independent legal entities.

The Automotive Division comprises the Passenger Cars, Commercial Vehicles and Power
Engineering business areas. The Passenger Cars Business Area essentially consolidates the
Volkswagen Group’s passenger car brands. Activities focus on the development of vehicles
and engines, the production and sale of passenger cars, and the genuine parts business. The
product portfolio ranges from fuel-efficient compact cars to luxury vehicles and also includes
motorcycles, and will gradually be supplemented by mobility solutions.

The Commercial Vehicles Business Area primarily comprises the development, production
and sale of light commercial vehicles, trucks and buses from the Volkswagen Commercial
Vehicles, Scania and MAN brands, the corresponding genuine parts business and related
services. The collaboration between the MAN and Scania commercial vehicle brands is
coordinated within the TRATON GROUP. The commercial vehicles portfolio ranges from
pickups to heavy trucks and buses. The Power Engineering Business Area combines the large-
bore diesel engines, turbomachinery, special gear units, propulsion components and testing
systems businesses. The activities of the Financial Services Division comprise dealer and
customer financing, vehicle leasing, direct banking and insurance activities, as well as fleet
management and mobility offerings. With its brands, the Volkswagen Group is present in all
relevant markets around the world. The Group’s key sales markets currently include Western
Europe, China, the USA, Brazil, Russia and Mexico. Volkswagen AG and the Volkswagen
Group are managed by the Volkswagen AG Board of Management in accordance with the
Volkswagen AG Articles of Association and the rules of procedure for Volkswagen AG’s Board
of Management issued by the Supervisory Board. To further enhance its leadership and
management model, the Volkswagen Group introduced an additional internal operational
structure in spring 2018. Volkswagen is convinced that this will allow better use of existing
competences and economies of scale, make it possible to leverage synergies more
systematically and accelerate decision making.

In addition to the Finance & IT, Human Resources and Integrity and Legal Affairs divisions,
the Volkswagen Group collaborates across six operating units and the China region, these
being the “Volume”, “Premium”, “Sport & Luxury”, “Truck & Bus” brand groups, as well as
the Components & Procurement and Financial Services operating units. The “Volume” brand
group comprises the Volkswagen Passenger Cars, SEAT, ŠKODA and Volkswagen Commercial
Vehicles brands. The Audi, Lamborghini and Ducati brands are brought together in the
“Premium” brand group. “Sport & Luxury” is comprised of the Porsche, Bentley and Bugatti
brands. The “Truck & Bus” brand group is the umbrella for the Scania and MAN brands.
Components & Procurement will function as one unit spanning all of the brands and
supporting them. The Financial Services business has been combined into a single unit.

This prepares the Volkswagen Group for a management structure that is simpler, leaner and
more effective, and strengthens the brands, giving them more autonomy. In line with the
principle of subsidiarity, decisions will be taken at the lowest competent level, close to
business operations.

At the same time, spreading the Group’s management duties more broadly means that
responsibility is assigned more clearly and definitively. Every member of the Board of
Management has assumed additional higher-level duties for the Group. At the same time,
the members of the Board of Management of Volkswagen AG have responsibility for a brand
group or operating unit, improving collaboration between the brands and the Group as a
whole and ensuring that management of the Group is a shared undertaking.

Each brand in the Volkswagen Group is managed by a brand board of management, which
ensures its independent and self-contained development and business operations. To the
extent permitted by law, the board adheres to the Group targets and requirements laid
down by the Board of Management of Volkswagen AG, as well as with the agreements in the
brand groups. This allows Group-wide interests to be pursued, while at the same time
safeguarding and reinforcing each brand’s specific characteristics. Matters that are of
importance to the Group as a whole are submitted to the Group Board of Management in
order to reach agreement between the parties involved, to the extent permitted by law. The
rights and obligations of the statutory bodies of the relevant brand company remain
unaffected. The companies of the Volkswagen Group are managed by their respective
managements on their own responsibility. In addition to the interests of their own
companies, the management of each individual company takes into account the interests of
the Group, the relevant brand group and the individual brands in accordance with the
framework laid down by law.

At Group level, committees also address key strategic issues, for example relating to product
planning, investments, risks management and management issues. The portfolio of these
committees and the regulation landscape at Group level was revised in the reporting year
and, in the course of this, a committee was established to manage the technology strategy.
This has reduced complexity and reinforced governance within the Group. Within our future
program TOGETHER – Strategy 2025, the Organization 4.0 Group initiative is also supporting
the Company’s transformation. The aim of this initiative is to connect activities across
divisions, initiate new organizational approaches and anchor these in the Group for the long
term. This will not only enable but actively create holistic stimulus for innovation,
entrepreneurship and change.

Strategic Alliances
Another way to enter a new market is through a strategic alliance with a local partner. A
strategic alliance involves a contractual agreement between two or more enterprises
stipulating that the involved parties will cooperate in a certain way for a certain time to achieve
a common purpose. To determine if the alliance approach is suitable for the firm, the firm must
decide what value the partner could bring to the venture in terms of both tangible and
intangible aspects. The advantages of partnering with a local firm are that the local firm likely
understands the local culture, market, and ways of doing business better than an outside firm.
Partners are especially valuable if they have a recognized, reputable brand name in the country
or have existing relationships with customers that the firm might want to access. For example,
Cisco formed a strategic alliance with Fujitsu to develop routers for Japan. In the alliance, Cisco
decided to co-brand with the Fujitsu name so that it could leverage Fujitsu’s reputation in Japan
for IT equipment and solutions while still retaining the Cisco name to benefit from Cisco’s global
reputation for switches and routers.Steve Steinhilber, Strategic Alliances (Cambridge, MA:
Harvard Business School Press, 2008), 113. Similarly, Xerox launched signed strategic alliances
to grow sales in emerging markets such as Central and Eastern Europe, India, and Brazil. “ASAP
Releases Winners of 2010 Alliance Excellence Awards,” Association for Strategic Alliance
Professionals, September 2, 2010, accessed February 12, 2011,
Economic Environment
Germany’s economic strength has been based on car production to a great extent. The
automobile industry is one of the dominating sectors because many economic activities
rely on and are linked to automobile production (i. e. tire industry, plastics industry, metal
processing). If you include suppliers, car services, garages or retailers, a total of about 5
million employees (1 out of every 7 jobs in Germany) depend on the success of the
automobile industry. The automobile industry also involves a large number of product
groups, such as the production of trucks, buses, trailers, containers, parts and spare parts.

After the world War-II, With the growth of the car firms, numerous suppliers opened up or
shifted plants into their vicinity. Along with that, employment steadily increased.
Production concepts, processes and the associated technologies have changed
dramatically since the first cars were built. Some 70 years ago, car assembly was primarily
manual work. Today, the process of car assembly is almost fully automatized. In the old
days, firms attached importance to the production of virtually every part in a single plant
while today the car producers concentrate on only a few specific production stages (i. e.
car assembly).

Parts and module production, services and related activities have been shifted to other,
specialized firms (outsourcing of production steps). This gives the producer greater
flexibility and lowers capacities and costs but also results in increased dependency on
suppliers. Since the 1980s, it has become clear that further productivity gains to retain
competitiveness could only be possible by outsourcing and securing greater flexibility. Due
to this, the entire production system has changed in sectoral and spatial terms.

And they are constantly growing, despite the financial crises of the past years:
domestically, the automotive industry remains the countrys most important economic and
Europe's single largest auto market.

Start-Up Cost
There are factors that cause a producer's average cost per unit to fall as the scale of
output is increased. "Economies of scale" is a long run concept and refers to reductions in
unit cost as the size of a facility and the usage levels of other inputs increase; they are
essential determinants for a cost-efficient production and they arise from the fact that an
increase in input (of one or more product) does not give rise to a proportional increase in
costs. Hence, the longer the production run over a period of time, the lower the unit cost
will be, until the minimum efficient scale of production for the product has been reached.
the factory at the start of the year. The Kassel plant celebrated two milestones: the
completion of three million DQ200 gearboxes helped take the total number of gearboxes
produced at the site to 125 million.

The common sources of economies of scale are purchasing (bulk buying of materials
through long-term contracts), managerial (increasing the specialization of managers),
financial (obtaining lower-interest charges when borrowing from banks and having access
to a greater range of financial instruments), marketing (spreading the cost of advertising
over a greater range of output in media markets), and technological (taking advantage of
returns to scale in the production function).

Each of these factors reduces the long run average costs of production by shifting the
short-run average total cost curve down and to the right. Economies of scale are also
derived partially from learning by doing.

Many of the marketing costs are fixed costs and so as a business gets larger, it is able to
spread the cost of marketing over a wider range of products and sales - cutting the
average marketing cost per unit. Furthermore, the choice to adopt a strategy of this kind
implies a facilitation in the case of a launch of another product. Every company,
nowadays, has also to success in management economies: as a firm grows, there is greater
potential for managers to specialise in particular tasks (e. g. marketing, human resource
management, finance).

Financing Sources
Incentives programs In Germany are available through different public funding
Instruments and for different funding purposes. The Individual funding requirements may,
for exam- pie, result from Investment projects, research and development activities,
personnel recruitment, working capital needs or other specific purposes. The different
Incentives Instruments Including grants, loans and guarantees are generally available for
all funding purposes and can ordinarily be combined; thus matching the different business
activity needs at different development stages of the company.

Investment Project Financing by Private Equity

Technologically innovative start-ups in particular have to rely solely on financing through
equity such as venture capital Special conferences and events like the Deutsches
Eigenkapita'- forum ('German Equity Forum') provide another opportunity for young
enterprises to come into direct contact with potential VC partners Public institutions such
as development banks (publicly owned and organized banks which exist at the national
and state level) and public VC companies may also offer partnership programs at this
development stage.

Investment Project Financing by Bank Loans

Debt financing is a central financing resource and the classic supplement to equity
financing in Germany It is available to companies with a continuous cash flow. Loans can
be provided to finance long-term investments, working capital and operational costs (R&Q
personnel) and for bridging temporary financial gaps Besides offers from commercial
banks. investors can access publicly subsidized loan programs in Germany. These
programs usually offer loans at attractive interest rates in combination with repayment-
free start- up years, particularly for small and medium-sized companies These loans are
provided by the fed- era] development bank Kf'v•,' and also by regional development
banks

Investment and R&D Incentives

When it comes to setting up production and ser- vice facilities, investors can count on a
number of different public funding programs. These programs complement investment
project financing Most important are cash incentives provided in the form of non-
repayable grants applicable to co-finance investment-related expenditures such as new
buildings, equipment and machinery, project funding is made available through a number
of different incentives programs targeted at reducing the operating costs of projects
Programs operate at the regional, national, and European level and are wholly
independent from investment incentives. At the national level all project funding has been
concentrated in the High-Tech- Strategy to push the development of cutting-edge
technologies Substantial annual funding budgets are available for diverse projects.

Labor-Related Incentives
After the location-based investment has been initiated or realized. Companies can
receiW2 further subsidies for building up a workforce or the implementation of projects.
Labor-related incentives play a significant role in reducing the operational costs incurred
by new businesses The range of programs offered can be classified into three main
groups: programs focusing on recruitment support, training support. and wage subsidies
respectively. Labor-related incentives play a significant role in reducing the operational
costs incurred by new businesses.
Global Information needs
By and large, there are four powerful global automotive megatrends behind the explosion in car
data availability and its growing potential to be monetized. Power train electrification is being
driven by stricter emission regulations, lower battery costs, widely available charging stations,
and increasing consumer acceptance. Electrified vehicles (hybrid, plug-in, battery electric, and
fuel cell) could account for a share greater than 10 percent of new vehicle sales by 2030, and in
selected geographies this number could go as high as 50 percent. Shared mobility as an
alternative to privately owned vehicles is growing as a mobility model. By 2030, one out of ten
cars sold could be a shared vehicle. This trend could spawn the rise of a market for fit-for-
purpose mobility solutions that will represent an attractive alternative to the current “one-car-
for-all-purposes” model. Car connectivity will allow for new functionalities and features to be
offered to drivers and passengers and will support the effectiveness of advanced driver
assistance systems (ADAS). Autonomous vehicles (AVs) will represent the ultimate
manifestation of ADAS, marking the shift from driver-assisted functionality to fully autonomous
vehicle operation. A progressive adoption scenario might imply that up to ~15 percent of
passenger vehicles sold in 2030 could be fully autonomous, although significant differences in
adoption might arise across different markets. Autonomy will progressively transform the car
into a platform from which drivers and passengers can use their transit time for personal
activities
These trends, thoroughly described in McKinsey’s report “Automotive Revolution – perspective
towards 2030,” will define new mobility models, and data-enabled services and features will
become increasingly available and relevant for customers. What the trends described above
have in common is their contributions (current and future) to an unprecedented explosion in
car-generated digital data, with significant implications not just for traditional automotive
industry businesses but for new players as well. Companies representing the high-tech,
insurance, telecommunications, and other sectors that at once seemed, at most, “automotive
adjacent” will play critical roles in enabling car data-related services that customers may be
willing to pay for

Global Information Sources

It’s easy to be a bit nostalgic for work pre-internet, when research could involve exploring the
dusty confines of the British Library or the excitement of digging out an old tome from a
government archive with numbers on Ugandan coffee exports from 1957. But nothing really
beats the satisfaction available today from downloading in just three or four clicks the entire
import-export database for the same country.

Transnational land database – the Land Matrix

International transactions in land have been called land grabs by some NGOs and the media. A
meticulously developed database of international land transactions is available, called the Land
Matrix, with plenty of useful visualisation tools.
IMF data site, data mapper and IMF Article IV reports
The International Monetary Fund (IMF) Article IV reports are unbeatable as a free and up-to-
date source of information on all major economic indicators for every country in the world; this
includes debt and capital flows, as well as a treasure trove of qualitative information about the
key developments, political and economic, from foreign direct investment (FDI) project
progress to conflict and instability. The IMF World Economic Outlook data site and data
mapper are very good as well, but if I’m researching any country I’ll always start with the Article
IV report.

The World Bank’s World Development Indicators

Absolutely everything. The World Development Indicators (WDI) is a huge collection of national
data on hundreds of indicators, from the number of mobile phones per 1,000 people to the
number of children out of school. It goes back a long way and has data on every country in the
world.

Technology for Managing Information

The meaning of technology is straightforward: knowing how to do something well. Here's a
more elaborate definition: the ability to create a reproducible way to generate improved
products, processes, and services. In fact, a modern manufacturing business must have a
substantial portfolio of individual technologies. The management of technology should ensure
that the firm maintains command of the technologies relevant to its purposes and that these
technologies support the firm's business strategy and shareholder value.

Technology management for strategic advantage is difficult and often frustrating. The central
issue is the need to reconcile the unpredictability of discovery with the desire to fit technical
programs into orderly management of the business. The traditional approach to managing
technology has been largely intuitive. Research and development is treated as an overhead
item, with budgets set in relation to some business measure (for example, sales) and at a level
deemed reasonable by industry practice. Budgets may be projected several years ahead, but
are usually set annually. Within this budget framework, decisions about areas of concentration
and project continuations may be left largely to R&D management. There is no assurance that
the R&D organization, left to its own devices, will pursue programs related to corporate
strategy, either in focus or in degree of innovation and risk.

In response to this unsatisfactory situation, many firms have become somewhat more
sophisticated. Managers outside the technology area participate in suggesting or reviewing
projects, but the connection to company strategy is still casual or haphazard. Some firms
subject R&D programs to a rigorous financial justification process based on net present value.
Arguing that research and development projects are investments—as in a sense they are—
corporate management seeks justification based on rate of return or payout. But it is difficult to
project financial returns on an R&D project, especially if the project is focused on achieving a
significant innovation. As a result, the program may be pushed toward conservative,
incremental projects; the results will be more predictable, but the program will have limited
strategic impact.

Clearly, then, there is a need for a measured, genuinely sophisticated approach to R&D
management. Interest in a better approach has been stimulated by various developments. First,
many corporate leaders have moved beyond the financially driven planning characteristic of the
1970s. Second, the success of entrepreneurial, high-technology companies has excited interest
in the potential of technology to build company value. Third, firms have seen that industry
leaders give high priority to technology management. Fourth, quality and manufacturing
capability are now considered strategic business weapons. Together these developments have
helped to create a desire to manage technology in a way that is congruent with business
strategy.