An article by David Scrimgeour, CEO of DS Consulting and Foreign Direct Investment Expert for Germany, UK and USA
Renewable energy is a remarkable success story in Germany. Current estimates suggest that at least 250,000 are employed in this industry. Half of the world’s market for solar energy is in Germany and the majority of the global wind turbine manufacturers and component suppliers are German SMEs. In the biogas sector there are already 4000 anaerobic digestion plants using organic material as feedstock.
Over the last few years a new industrial sector has emerged with specialist engineering consultancies, plant manufacturers as well as service and maintenance providers. Some of these companies have become relatively large, often able to raise substantial capital by going public. The industry has engaged in cross-border investment, both within and beyond Europe, and this has enabled German companies to profit from international trends in alternative energy deployment and to become the world’s technology leaders in renewable energy.
However, although all this sounds positive, there are obstacles to be overcome and also risks to be managed. The main issues are: lack of capital, limited resources and “thinking big”. And the main danger is …inaction. If German companies do not get their act together quickly then foreign investors will acquire these technology assets thereby cutting out the entrepreneurs from the opportunity to generate wealth in global markets. In fact there are signs that this is already happening.
Germany is the world’s largest exporting nation and there are plenty of examples of mediumsized companies with substantial shares of the world market in their particular niche. The new challenge is that renewable energy is a project management play rather than an export play. This means that entrepreneurs must themselves lead their engagements in foreign markets in order to maximise profit and protect their intellectual property.
German mid-sized companies are often under-capitalised and the renewable energy companies are no different. Local banks may not be up to speed on the technology being used and are often lacking international expertise. One answer is to partner with foreign venture capitalists who always have excellent financial networks in their own markets. In the USA investors are waking up to the “green” opportunity and actively looking for applications for these new technologies.
The engineers have been driving this new industry in Germany but sales and marketing skills are more important for the development of international markets. But the resource issue is not only about recruitment but also about management committing time and energy to find overseas partners who can help accelerate the return on these foreign investments.
The greatest obstacle to success for these companies is a fundamental lack of vision. An entrepreneur in any industry sector in the US has no difficulty in seeing his company as a global leader in a few years time. The German market may be the biggest in Europe and the feed-in tariff for electricity generated from renewable sources has created a comfortable home market. But the real prize for ambition and audacity will be achieving market share in even bigger economies such as China, the US and, ultimately, India. However, if German executives cannot rise to the challenge, then it will be investors from these countries that will
reap the benefits of this German success story.
David Scrimgeour has 15 years experience of FDI consulting in Germany for a wide range of public and private sector clients. Born and educated in Edinburgh, Scotland, David worked for a number of years as a solicitor before moving to Munich. From 1992 to 2000 he was Director of Locate in Scotland responsible for promoting investment into Scotland from Germany and Austria. David then established DS Consulting GmbH and now focuses mainly on strategic advisory work in the Foreign Direct Investment field.
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