The German case, Germany had 345 competitive industries in 1985, including both consumer and industrial products, with especially strong positions in production machinery. Natural resources (mainly iron and coal reserves) contributed to the initial formation of some competitive industries. Their role is now much smaller, while the presence of highly educated, skilled and motivated workers, a scientific and technical knowledge base and a well-developed infrastructure, are very important. Universities, high-quality technical colleges, a distinctive apprenticeship system and a host of research institutes lead to the continuous upgrading of human capital and the knowledge base. The large size of the market and its early saturation in many products has been advantageous for many German industries. However, the most important demand attribute is the presence of sophisticated, extremely demanding and quality-conscious consumers and industrial customers. Clustering is high in Germany and suppliers and buyers collaborate extensively in technical issues. The hierarchical structure and the emphasis on precision engineering exhibited by most competitive German firms have led to international success in high performance segments. The technical orientation of firms has also resulted in increased competitiveness in industries requiring complex production processes.
Rivalry has been strong in the internationally competitive industries and competition has focused on technology and performance. Government has been less protective of industry than in most other nations, while its role has been substantial in factor creation. The two World Wars were at the same time a source of many losses for Germany and a challenge to overcome them and recreate a strong industrial base. Germany has some ‘unusual’ advantages in industries related to physics, chemistry and mechanical engineering (Porter, 1990: 379). Advantages in human capital and technological knowledge have spread among industries, creating deep and wide clusters. The two Wars have provided a constant challenge to Germans to upgrade competitive advantage. The only worrying sign has been the absence of positions in new industries. Recent phenomena, such as the apparent consolidation in some of the traditionally strong industries along with a subdued domestic rivalry, which threaten their competitive advantage, and concerns over the ‘ability to make fundamental breakthroughs in new scientific fields’ (Porter, 1990: 380) have raised questions for the future of German industries.