Competitive Advantages of Germany

Aerosil is a fumed silica product developed in 1942 by Degussa AG in Germany. The scientific name of fumed silica is Colloidial Silicon Dioxide. It is pure silicon dioxide, made from vaporized silicon tetrachloride, oxidized in high-temperature flame with H2 and O2. Aggregated amorphous nano-sized primary particle gives free flow to powder materials. It gives thickening effect and thixotropy by dispersing to liquid materials. Standard hydrophilic products are made of primary particles from 7 nm to 40 nm, and also these products are surface modified to hydrophobic.

As of September, 2007 what was Degussa is now the chemicals business area of the new Evonik industries. Right from the start of the business activities for AEROSIL® fumed silica, Evonik followed Degussa’s philosophy for success to combine tradition and progress. In 1942 an idea became reality. Degussa invented the fumed silica as a replacement for carbon-black, which was manufactured from oil, to counteract the shortage of resources. At that time, the trade name AEROSIL® was invented and protected.

Today AEROSIL® is a synonym for fumed silica and Evonik is globally present with more than 100 sales offices in 95 countries and over 1000 highly motivated employees. They have eight production plants and applied technology laboratories in Germany, China, Japan, Thailand and the USA, enabling them to stay close to their customers.

They are not only known for their extensive product line with it´s wide variety of grades, but are also market leaders with their highly specialized quality and environmentally-conscious technologies.

Without AEROSIL® fumed silica many everyday things would no longer be conceivable. AEROSIL® fumed silica is found, for example, in buildings with earthquake-proof foundations, in silicon sealants for bath tubs, in yacht production, as insulation material for Ceran® stove tops, or in paints that without AEROSIL® products would be difficult to use.

They have over sixty years experience in this specialty field and are continually optimizing their product line and technical services with great flexibility according to the needs of their customers.

Evonik’s close contacts with the industries that use their products, as well as to their suppliers, allow them to develop new innovative products for existing applications, as well as new applications for established products. Due to the continuous expansion of Evonik’s worldwide production capacities, they are able to supply their customers with the right products in the desired quality and quantity throughout the world. Close cooperation and partnership with the customers is one of Evonik’s top priorities.

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Industry History

The shortage of raw materials and resources on our planet has been a hotly debated topic for several decades. The “black gold” in particular inspired many to become active researchers. Degussa were also enthusiastic about the idea of one day finding a substitute for oil. This is why, in 1941, they began to develop a white filling material for the tire industry as a substitute for industrial carbon black, which, up to then, could only be produced from oil. Just twelve months on, having created high-temperature flame hydrolysis, they succeeded in producing the first ultrafine-particle pyrogenic silica. Their vision became reality and the brand known as AEROSIL® was born. dr, harry

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This success story took its course, and in 1966, an important foothold was established in Asia with the building of the Nippon Aerosil production plant in Yokkaichi, Japan. In 1976, the same step was taken westwards when the production of AEROSIL® began at the new Degussa plant in Mobile, Alabama/USA. More than 60 years of experience, development and research have by now made AEROSIL® the most frequently used brand for the creation, modification and characterization of surface effects.Chemistry_by_Ekspertiza.jpg

APPLICATIONS OF AEROSIL®

More than 60 years of experience in the production, modification and application of fumed silica provide a sound basis for continuously enhancing these products. Evonik strive to meet the increasing demands of existing and new areas of application. Their objective is to fully satisfy customer’s expectations – now and in the future. AEROSIL® Fumed Silica makes use of the smallest of things. The smallest particles of some AEROSIL® grades measure no more than seven nanometers – a human hair is 3,000 times thicker. So small, yet so great: The smaller the particles, the greater their effect and range of applications.

AEROSIL® optimizes some factors whish are given below :

paints and coatings

catalysts

airbags

silicone sealants in the car, sanitary and electronics sectors

sealing inserts, e.g. for covering crown cork

printing inks

creams, lotions, gels

deodorants

paper properties

chemical dowels

unsaturated polyester resins

light bulbs and fluorescent tubes

toners for photocopying machines

silicone profiles

shoe soles

putty

dental composites

2-component mortar

marine paints

structure adhesives for the production of rotor blades in wind power plants

the disability of active substances in tablets

The advantages of AEROSIL® Fumed Silica in different industries :

Adhesives & Sealants

Batteries

Food

Glass

Paints & Coatings

Personal Care

Pharmaceuticals, Plastics ,Silicones , Toners

Product Line

AEROSIL® is an extremely versatile product. In order to find the AEROSIL® grade with the right characteristics for the application, they have grouped the various AEROSIL® types by Raw Material & Method of Production. Not only are these, but also the behavior with water, whether hydrophilic or hydrophobic, crucial for the final application.

AEROSIL® grade could be found to solve problem in one of the following categories:

Hydrophilic Fumed Silica

Hydrophobic Fumed Silica

Fumed Mixed Oxides

Hydrophilic Fumed Metal Oxides

Special Hydrophobic Silicas and Hydrophobic Metal Oxides

Special Granulated Fumed Silicas

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Competitive Strategy

To decide the competitive strategy there are two deciding factors. These are: industry structure and positioning within industry.

Industry Structure

Porter’s 5 forces analysis

Porter’s 5 forces analysis is an analysis skeleton for industry analysis and business strategy development which was founded by by Michael E. Porter of Harvard Business School in 1979 . It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability.

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Figure 01: Porter’s five forces analysis

Porter’s Five Forces include three forces from ‘horizontal’ competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from ‘vertical’ competition: the bargaining power of suppliers, bargaining power of customers

The threat of substitute products

The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases. But there are no substitutes for fumed silica. That’s why there is no threat of substitute products.

The threat of the entry of new competitors

As the business of fumed silica is very lucrative; thus, results in many new entrants, which will effectively decrease profitability. But there are some barriers to enter this industry and those are given below :

The existence of barriers to entry

In 1942, Degussa invented the fumed silica as a replacement for carbon-black, that was manufactured from oil, to counteract the shortage of resources. At that time, the trade name AEROSIL® was invented and protected. Today AEROSIL® is a synonym for fumed silica.

Economies of product differences

With a sales volume of nearly 1.8 million metric tons a year (2004), sales revenues of approximately € 1,071 million (2005) and a staff of 530, Evonik is the largest chemical manufacturer at the Marl Chemical plant.

Capital requirements: Due to heavy investment in setting up the plant and thw production process, a very few wants to enter to this industry.

The intensity of competitive rivalry- For most industries, this is the major determinant of the competitiveness of the industry.

Number of competitors: There are only two substitute product for fumed silica and those are: Cab-o-sil and HDK, these rivals compete in non-price dimensions such as innovation, marketing, etc.

Exit barriers: As the initial investment is high and the cost of swithiching to other manufacturing product is also very high, so the exit barrier is also high. Competitors are here to stay.

Positioning Within Industry

AEROSIL® grades of Evonik have gained competitive advantages because of its cost leadership and the quality it offers.

To compete internationally Evonik has adopted the global strategy approach driven by the principle “think global, act local”. Fumed silica grades are sold internationally under one brand, AEROSIL® and one target audience, that is the business consumers.

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Porter’s Diamond Model

Germany possesses comparative advantage in producing AEROSIL® fumed silica. Germany has the ability to produce the AEROSIL® fumed silica at a lower opportunity cost. The comparative advantage of Germany in the production of fumed silica is described by the Maichael Porter’s Diamond Model as followed:

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Figure 02 : Porter’s Diamond model

Factor Conditions- refers to inputs used as factors of production – such as labor, land, natural resources, capital and infrastructure. Porter argues that the “key” factors of production are created, not inherited. Specialized factors of production are skilled labor, capital and infrastructure.

Human Resources

With over 82 million inhabitants, Germany is the most populous country in the European Union Germany has the best qualified workforce in Europe. Above all, the German chemical industry has traditionally regarded the training and continuous upgrading of employees´ qualifications as being very important. This is because a well trained workforce is the precondition for the operation of highly specialized high-tech facilities, production of innovative chemical products, and high productivity. Well trained employees also mean fewer accidents with minimal downtimes as one result.

The chemical parks often have training centers on-site to ensure that employees’ theoretical and practical knowledge is kept up to date. Many chemical parks help companies located there to recruit qualified employees. A well qualified workforce and ongoing training are important factors. Another factor which contributes to the success of chemical companies based in Germany is the high degree of identification of employees with their company. Highly motivated, they remain faithful to their companies, and staff turnover is low. The advantage: employees gather valuable expertise and experience, which in turn ensures smooth operations and contributes to economic success. Employees’ high degree of identification with their companies also involves the stable and consensus-oriented partnership which characterizes the relationship between chemical companies and trade unions in Germany. The result speaks for itself: Germany is the country with the lowest number of strikes in Europe. But the main problem from Germany’s point of view is that the cost of labor and raw materials are very high. And that is the reason why German industries mainly shifted their manufacturing plants to the countries where labor is cheaper. They have a market all over the world. The people who are engaged, either directly or indirectly in this industry account for approximately 27 percent of the total work force and produce more than 14 percent of Germany’s total manufacturing output.

Physical Resources

The main raw material for fumed silica Most of the country’s products are in engineering, especially in automobiles, machinery, metals, and chemical goods. Germany is the leading producer of wind turbines and solar power technology in the world.

Knowledge resources

It is very important for a country to have a R&D sectors and specialized institution so that they can provide more specialized knowledge for them. Germany has very good and sophisticated research centers that are essential to do extensive research to innovate new product. And that is the reason why they are famous world wide.

Infrastructure- With its central position in Europe, Germany is an important transportation hub. This is reflected in its dense and modern transportation networks. Probably most famous is the extensive motorway (Autobahn) network that ranks worldwide third largest in its total length and features a lack of blanket speed limits on the majority of routes. Shipyard_at_dawn_by_le_feu.jpg

Demand Conditions

Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the market demands high quality and a close proximity to such consumers enables the firm to better understand the needs and desires of the customers. The issues that affect demand conditions:

Sophisticated and demanding buyers

The home market of the Germany’s chemical product demand very high quality product. High Product Quality is the essential prerequisite for their business success. One guarantee is the global quality management system for AEROSIL® products, which monitors and supports production.

The Product Safety department maintains product registration and the supporting MSDS, safety-specific and toxicological data to ensure the safe and legal use of our products.

Anticipatory buyers need

German Chemical industries saw that their demand in the home market is enormous. They saw the scope for more demands in the other markets of the world. German chemical industry itself is in their different manufacturing units around the world. They are expanding their demand for chemical in the whole world.

Related & Supporting Industry

Porter also argues that a set of strong related and supporting industries is important to the competitiveness of firms. This includes suppliers and related industries. German Chemical industry also needs to have close relationship, joint innovation with suppliers, complementary products, sharing same technology with their related and supported industries to sustain its competitive advantage.

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Evonik is an active partner of the most important transaction platforms in the chemical industry. In close cooperation with ELEMICA they have built up connections to their customers on the base of the ChemXML standards. ELEMICA is the platform for the raw material providers to the chemical industry and CC-Chemplorer, the purchasing platform for engineering goods and consumption material.

VMI Vendor System

VMI is a further step to improve customer convenience. Mostly with silos and tanks the supplier takes care that a customer never lacks raw material. Advanced sensor technology is capable to communicate directly with the ERP-system of the supplier. Together with their IT-partners they are prepared to design and implement the appropriate connection.

Firms Strategy, Structure & Rivalry

In Porter’s study, it is found that the dynamism and pressure created by a vibrant local industry was perhaps the single most important stimulus to innovation and upgrading in an industry-a result that held independent of country size.

Domestic rivalry provides an essential motivation for firms to make the investments and take the risks necessary to generate competitive advantage. Domestic rivalry is more important than competition with foreign firms because proximity speeds information and improves incentives to compete. Domestic competition negates basic factor advantages and forces firms to develop higher order (more sophisticated) and ultimately more sustainable advantages. In the chemical industry of Germany there exists an environment featuring a strong supply chain management, sophisticated demand from the domestic users, and an intensely competitive neighborhood with companies like BASF, Industries, Wacker Chemie.

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It has gained competitive advantages due to several reasons and those are discussed below:

New Technology

Degussa invented the fumed silica in a substitute of carbon black. So AEROSIL® has the competitive advantages as the inventor of fumed silica.

Shifting Buyer Needs from Carbon Black to Fumed Silica

As a replacement of carbon black, fumed silica has been used by the industries. The buyer needs had been shifted to the fumed silica from carbon black.

Input Cost or Availability

The raw materials needed for producing fumed silica is locally produced. Evonik is an active partner of the most important transaction platforms in the chemical industry. In close cooperation with ELEMICA they have built up connections to their customers on the base of the ChemXML standards. ELEMICA is the platform for the raw material providers to the chemical industry and CC-Chemplorer, the purchasing platform for engineering goods and consumption material.

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SWOT Analysis

A scan of the internal and external environment is an important part of the strtegic planning process. Environmental factors internal to the firm usually can be classified as strngths(S) or weakness(W), and those external to the firm can be classified as oppertunities (O), or threats(T). Such analysis of the strategic environment is refered to as a SWOT analysis.

The strengths , weaknesses, opportunity and threats for AEROSIL®:

Strengths

Evonik’s strengths in producing AEROSIL® fumed silica are its resources and capabilities that can be used as a basis for developing the competitive advantage. The strengths include:

Patent

Strong Brand Name- AEROSIL®

Good reputation among customers

Exclusive access to the natural resources

Extensive distribution channel

Weakness

The absence of certain strengths results in weaknesses for Evonik. As it enjoys an advantage of huge production capacity and a large manufacturing plant, but it may result into weakness as it employs a large pull of capital. It also prevents the firm from reacting quickly to the changes in strategic planning.

Opportunity

The external environmental analysis may reveal certain new opportunity for profit and growth. The opportunity for Evonik’s AEROSIL® fumed silica includes:

Arrival of new technology from the continuous research

Removal of international trade barriers

Economic integrations

Threats

Changes in the external factors may result into threats for the firm and those are:

Entry of new competitor

Innovation of new substitute product

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Pest Analysis

PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research and gives a certain overview of the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework.

Political Analysis

Political situation is a very significant external factor for the development of an industry. It is only through proper policies of the government added with incentives, subsidies and promotions that an industry can flourish. In Germany, government has taken several initiatives to promote the chemical industry. German chemical industry is doing very well in a global arena because they are getting support from their favorable government policies and terms & conditions for increasing their productivity and constant innovativeness. Following reasons influence in this regard:

Political stability

Legal framework for contract enforcement

Intellectual property protection

Trade regulations & tariffs

Favored trading partners

Pricing regulations

Taxation – tax rates and incentives

Wage legislation – minimum wage and overtime

Economic Analysis

The economic analysis is often used as a generic ‘orientation’ tool, finding out where an organization or product is in the context of what is happening outside that will at some point effect what is happening inside an organization.

The home economy situation is very vital to the growth of the industry. Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. Germany is the largest national economy in Europe and the third largest by nominal GDP ($3.22 trillion) in the world and also ranked fifth by GDP. This is a very stable and favorable economic condition for a country to be internationally competitive.

Following reasons influence in this regard:

Government intervention in the free market

Comparative advantages of host country

Exchange rates & stability of host country currency

Efficiency of financial markets

Infrastructure quality

Skill level of workforce

Economic growth rate

Unemployment rate

Inflation rate

Interest rates

Social Analysis

The social analysis is used as a generic ‘orientation’ tool, finding out where an organization or product is in the context of what is happening outside that will at some point effect what is happening inside an organization. The analysis headings are a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company. German Chemical industry always looks at the social factors to manufacture products. These factors affect customer needs and the size of potential markets. Some social factors include:

health consciousness

population growth rate

age distribution

career attitudes

emphasis on safety

Demographics

Class structure

Education

Culture

Attitudes

Leisure interests

Technology Analysis

The technological analysis is often used within a strategic SWOT analysis. The technology analysis is often used as a generic ‘orientation’ tool, finding out where an organization or product is in the context of what is happening outside that will at some point effect what is happening inside an organization.

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions German Chemical industry is doing well because their country has resources of high technology. Some technological factors include:

Research & Development (R&D) activity

automation

technology incentives

rate of technological change

Recent technological developments

Technology’s impact on product offering

Impact on cost structure

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As Evonik has created competitive advantages in producing AEROSIL® fumed silica, it has quite a few factors to sustain competitive advantage.

Nature of Sources of Competitive Advantage- Higher Order Advantage

The advantages that Evonik possess for AEROSIL® fumed silica is hard to replicate by the competitors. As Evonik possesses the exclusive right to produce AEROSIL® fumed silica, no other can produce the exact fumed silica grades that we produce.

Number of Distinct Sources of Advantages

Extensive World Dealer Network

Only AEROSIL® products are offered from eight production sites distributed around the globe, supported by applied technology, research, commercial and technical service offices on three continents. This has established us as a committed service provider and competent advisor.

AEROSIL® production plants, technical service centers, research centers and commercial and technical service offices are located in Europe, North America and Asia with more than 100 sales offices in 95 countries to serve customworldwidehttp://www.aerosil.com/pub/NR/rdonlyres/2C62F50C-39FB-47B9-9F1F-82C9FAB46A6C/0/aerosilLocations.gif

Brand Name

AEROSIL® has become the synonym for fumed silica. So, Evonik enjoys

the strength from the brand name itself.

Technical Service

While typical inquiries can be answered by the local sales staff and distributors, a highly qualified technical consultancy service is also available to their customers. To this end, they support their customers by maintaining a network of experienced applied technology experts – specialized in key industries – on three continents.

Constant Improvement & Upgrading

Research is the future. Or more precisely: Investment in the future. The work of scientists today forms the basis for the business successes of tomorrow. This principle is nothing new for AEROSIL® products. It has been an established tradition for more than 60 years now. The outstanding research and development departments have made them one of the most frequently sought after contacts worldwide for the generation, modification and characterization of pyrogenic oxides, as well as for the performance effects they bring.

1941

Development of high-temperature hydrolysis for the production of pyrogenic silica

1942

Development of the first industrial production process in Rheinfelden, awarding of the first patent

1943

AEROSIL® is registered as a trademark for Degussa’s pyrogenic silica

1953

Production of aluminum oxides using the AEROSIL® method

1954

Production of pyrogenic titanium oxides

1963

Commercial production of the first hydrophobic types, AEROSIL® R 972 and AEROSIL® R 974

1986

Development of a further chemical after treatment technology; hydrophobizing method completed. AEROSIL® R 805, R 812 and R 202 launched

1992

Launch of the first structure-modified hydrophobic product AEROSIL® R 8200

First fully-integrated production location for AEROSIL® in Waterford, USA.

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Recommendation

Evonik should not necessarily pursue the more lucrative opportunities; rather it may have a better chance of developing competitive advantages by identify a fit between strengths and upcoming opportunities. In order to overcome the threats from the external environment, it should get prepared itself to pursue a compelling opportunity.

2. Format and Style

The format and style of the final report is similar to that required of a technical paper with the following requirement:

Cover page

Microsoft Office Word A4 page setup

1.5 line spacing

Point 12 ‘Times New Roman’ font

1 inch page margin