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Master programme in Economic Growth,
Innovation and Spatial Dynamics
A Comparative Study of Wind Power Industry in Denmark and China, Based on Porter’s Diamond Model
Ye Gu
Abstract: This thesis is endeavoring to compare the competitiveness of the wind power industry from two very different countries China and Denmark, through the Porter Diamond Model as the methodological framework. The aim is to see why both countries seem to be so committed with wind energy, yet the outcome is so different up until now. Ultimately it is going to explain if there is any way that China could learn from Denmark in terms of this industry. Also in the end, porter’s diamond model is a bit corrected to be better suited to the energy sector as a contribution to this research.
Key words: Porter diamond Model, Wind power, SWOT, Triple helix, Energy Policy
EKHR21
Master thesis (15 credits ECTS)
June 2010
Supervisor: Kerstin Enflo
Examiner: Ola Jonsson
Acknowledgements
This thesis has been conducted at School of Economics and Management of Lund University under the supervision of Kerstin Enflo. First of all I would like to thank my parents, who are the ones who encouraged me to go to a foreign country Sweden to see more about the world and build up and better myself as a person, and enjoy the absolutely different, interesting and exotic life here.
Secondly, I would give my very sincere thanks to my thesis supervisor Kerstin Enflo, who would always be so patient with me with all my questions, providing me all the professional answers and personal ones. She has been giving me lots of spiritual support, which made me feel relaxed about the thesis work.
Thirdly, I thank my dear friends, who have been always there for me whenever I feel stressed or uncertain about the work. Also thank all my courses teachers, who have been helping me have a better view of the whole world horizontally and vertically, which would lead me write something complete and mature.
Especially thanks to my boyfriend Andreas Hartmann, who would everyday care about my thesis, motivating me to do my best on my thesis work together with caring about my daily life. He is the very important one who made it possible for me to go through this period, and also gave me intellectual and moral support in endless ways.
Last but not least, I thank Lund University, Sweden, which gave me the first opportunity to come to the western world, to see everything, including my home country from a different perspective that I would not have in my home country, which has been bettering my understanding of how the world economy, society, and ever progressing new technology work. But for them, I would not have been enjoying so much here in Sweden, would not have achieved so much as well.
The flaws remain to mine.
Preface
Personally wind turbines in my memory since childhood were so magic, so magnificent and attracted me much in its huge shape, let me give them owe and holy thought. When I was small, I thought they were just some tourist attractions. Later I figured that it helped to generate electricity and raise water and so on. So the holy big machines were even a significant helper for the needs of mankind’s energy usage. That makes me admire them even more. They look like giant heroes. In my program, I’m honored to get into the course called “innovation, energy and economics growth”. That’s probably one of the most interesting courses I have ever had since I went to school because it is really linked to our daily life, and to the challenges facing us today. It talked about energy history and the current renewable energy source and future prospect and so on, where I was attracted to solar and wind parts most. Doing research on wind was my baby-girl’s dream. If the memory of childhood triggered my interests in wind energy, then the current situation about renewable energy in the world made this love into a more mature and moral level. Therefore, I did not hesitate to choose it.
List of tables
List of graphs
Table of Content
1. Introduction 6
1.1 Research question: 9
1.2 Aim and motivation: 10
1.3 Delimitation 11
1.4 Introduction to wind energy and to the history of the usage of wind energy 11
1.5 Outline of the Thesis: 12
2. Theory and Literature Review 13
2.1. Previous approach to comparative studies in terms of learning from Denmark 13
2.1.1 SWOT Model for the comparison of Sweden and Denmark 14
2.1.2 Triple Felix Model for the comparison of Taiwan and Denmark 15
2.2. My Theoretical approach Porter’s diamond model 17
2.2.1 Factor condition 20
2.2.2 Demand condition 21
2.2.3 Related and supporting industries 22
2.2.4 Firm strategy, structure and rivalry 23
2.2.5 The role of Chance 23
2.2.6 The role of Government 24
2.3. Previous papers which used Porter’s diamond model for one country only 25
2.3.1 The competitiveness analysis of Chinese wind energy industry based on Porter’s Diamond Model (2007) 25
2.3.2 Competitiveness Analysis for China’s Wind Power Industry: Based on a Dynamic Diamond Model (2009) 26
3. Method and Data 26
3.1 Methodological framework 26
3.2 Data 27
3.2.1 Data collection method 27
3.2.2 Data analysis method 27
4. Empirical analysis 29
4.1. Danish Case 29
4.1.1. Factor condition 29
4.1.2. Demand condition 31
4.1.3 Related and supporting industries 32
4.1.4 Firm strategy, structure and rivalry 36
4.1.5 The role of Chance 37
4.1.6 The role of Government 37
4.2. Chinese Case 39
4.2.1 Factor condition 41
4.2.2 Demand condition 42
4.2.3 Related and supporting industries 43
4.2.4 Firm strategy, structure and rivalry 46
4.2.5 The role of Chance 48
4.2.6 The role of Government 49
5. Results and discussion 50
5.1. Comparison and discussion 50
5.2. Recommendation for improving Porter’s diamond model 52
6. Conclusion and recommendation for further research 52
7. References 53
List of Tables
Table 1 Denmark’s Key Energy Index
Table 2 Usage of Wind Energy in the history
Table 3 Denmark Nature resources
Table 4 Number of Personnel in RISO National Lab
Table 5 Number of the firms in the supply chain
Table 6 Danish wind energy sector clusters
List of Figures
Figure 1 Emissions of Carbon Dioxide from 1860-2000
Figure 2 Porter’s Diamond Model
Figure 3 Population working in wind energy sector in Denmark
Figure 4 Danish wind energy clusters
Figure 5 Population without electricity, 2005
Figure 6 Wind turbines share in the Chinese market
1. Introduction
2009 United Nations Climate Change Conference(COP 15) tried to make a further step after Kyoto Protocol. Unfortunately it didn’t end up the results as it had been expected, rather chaos, without universal agreement being really achieved.
Figure 1 Emissions of Carbon Dioxide from 1860-2000
Source: Nilsson, 2009 SWECLIM and Swedish EPA
However, the problems exist still. Climate has been changing during the past 200 years since industrial revolution. If the 1800 England Industrial Revolution led to the start point of massive green house emission (GHG), then today’s rapid developing countries have been making a further impact on the GHG, for example India, Brazil, China and so forth. Figure 1 shows the severe situation that half of all emissions from combustion have happened during the last 25 years. However, it is not reasonable or fair to ask those countries to stop developing in order to protect the planet since the already developed countries are the ones who have been contributed a lot to the severe environmental scenario today. The better way would be to help the less developed countries to develop in a way which is different from what the western countries have been through – a sustainable way. But how can we achieve it?
Instead of stopping the developing countries developing, there are other optimal ways to reduce the greenhouse gas emission and contribute to the world wealth. As Saxenian (2006) argued in her new masterpiece The New Argonauts, the growth of China doesn’t make Americans poorer, but richer, through those who were born foreign, mainly from India and China, but educated in the United States. They brought new technology home, traveling back and forth between Silicon Valley and Taiwan, Shanghai, Beijing, Bangalore and so on. They better the employment at home and also better the division of work. That is why it makes the Americans richer instead of poorer. With the example, my point is spreading the knowledge would not make the creator or inventor poorer, but rather richer. And the same would apply to any Sino-western relationships.
Especially today’s world, what we need is cooperation with competition. Trust only makes the price unaffordable and worsens the world. Denmark has the leading technology of wind power. Instead of measuring how much green house gas emission China has been contributing to and scolding it, it would pay off more to see how China could develop renewable energy, in this case wind energy, and grow “greenly” to keep favoring the global consumer in many senses. Today, according to the data sorted by China’s commercial website, China’s trade has been 8% of the whole world trade volume[1]. Apparently, it has become a huge country in terms of trade, but far from a strong trade country, which means the way it is doing now cannot last long because of the environmental issues. China has been sacrificing the environment, producing low value added products to export. It contributes a lot to the environment worsening. However, if we look at those who are consuming the products, we could see that the whole world consumer is the one to blame, to be fair.
If it was not for the low-price labor countries, the whole products would be more costly. Plus there would have been new countries, to replace China, but in a similar way to produce products and export them, sacrificing the environment. Therefore, the key is to see, if there is anyway that those energy usage intensive countries like China would be able to change its way to grow, and keep contribute the world economy. Also of course, it will contribute a lot to itself.
Energy supply is the central issue. Without it, one could just go nowhere on this planet. But the world is confronted with the problem of extinction of the fossil fuel, together with severe environmental problem. However, some of the western countries have realized this problem decades’ back like Denmark, from 80s of last century, there was a heated debate against nuclear energy. Wind energy was promoted and strengthened there after. Today it becomes the world leader in terms of wind power industry and wind turbine manufacturer and all the related services. More than 20% of the power source was from wind energy.[2]
Table 1 Denmark’s Key Energy Index
Index of Share (%) / 1980 / 1990 / 1995 / 2000 / 2004 / 2005 / 2006 / 2007 / 90-07Self dependence / 5 / 52 / 78 / 139 / 156 / 155 / 144 / 130 / 151%
Dependence on Oil / 67 / 43 / 45 / 45 / 41 / 41 / 40 / 40 / -8.8%
Dependence on Renewable energy / 3 / 6.2 / 7.4 / 10.5 / 14.8 / 15.6 / 15.7 / 17 / 177%
Wind power in all electricity / - / 3.8 / 5.7 / 19 / 23.5 / 24 / 24.2 / 24.1 / 542%
Source: Energy in Denmark, 2007 sorted by Gu, Ye
Gu(2010) stated that this data above in Table 1 shows that wind power becomes one of the main power resources together in Denmark, instead of being a substitute one for its share of 24.1% in 2007. With the negative rates of its dependence on oil, it also becomes an energy self dependent country in terms of energy supply, with a total of 130% in the year 2007. Therefore, it leaves lots of food for thought, that it must be a role model for any country which wants to develop wind power.
1.1 Research question:
Is there some way that China could learn Denmark’s wind power industry and increase its wind power share among the entire electricity source and help reduce CO2 emission?
Then there are sub-questions to be answered such as:
Both countries are (in different time point) so much supporting renewable energy, why Denmark has been so successful after a couple of decades while there seems to be still bottleneck somewhere in the Chinese wind industry? What are the positive forces that drove Denmark’s wind energy so competitive in the global market? Does it ever have flaws? What are the China’s problems? What is the major problem? Can China learn from Denmark? Or is it just too different that china cannot learn? That way, how to just improve the Chinese cases to the optimal scenario? In addition, is the model I will use in this thesis suitable enough that I could just fit the two cases in? Or there are somewhere flaws by using this model to the energy case? If there is a way to better fit it in the case and how to improve the model?
1.2 Aim and motivation:
Why I study this; what’s the significance of studying this:
Climate change has been put forward since decades ago and different environmental frameworks have been worked on. The aim is to get all the countries to reduce the CO2 emission and save the planet, especially the high-emission countries or the fast developing countries like China India and Brazil. However, I’m here only to study China because that’s where I am from and where I think I would be able to do better than elsewhere. China during the past decades has been growing dramatically thus it has a big share of CO2 emission. Therefore, if China could somehow control its green house gas emission, then it’s not only a big “treat” to the current sickness of the world, but also a role model to other developing countries like India. Although India’s CO2 emission has not even got closer to the China’s CO2 emission, it will grow later with its expanding population certainly. China has its huge hydro power project, with its share of only 19.5% though still.[3] But it is not enough and the wind resource in China is relatively rich. There is a big potential there if done correctly. It would be hard for a developing country to figure out a whole new frame to explore its wind energy. The economic way is to learn somewhere else, where they have the successful experience. And Denmark can be considered the most successful country with wind energy usage. 20% electricity is by wind power. It must be fruitful if China could learn something from it, institutionally, technologically and ownership and innovation wise. Although my research question is: what are the key differences between China’s and Denmark’s wind power production systems, I am not studying the difference for the sake of difference. The ultimate goal is to learn something from the difference, in a good way. Therefore, there might be something that China can learn from Denmark, although not all because of the difference background and so forth. (Gu, 2010)