Greece, albeit a small country, has managed to stand out as a global leader in shipping – with Greek ship-owners controlling about 16 per cent of the merchant fleet. Apart from the widely acknowledged boost from net shipping receipts to the Greek economy, a critical issue is to explore additional channels through which the economic power of Greek ship-owners could feed into the Greek economy. While global shipbuilding activity is largely concentrated (with 90 per cent being built by Asian shipyards), the market for marine equipment is highly diversified in an extensive network of global supply chains. NBG Research estimated that Greek ship owners “control” about 1/10 of this market, by creating an annual demand of about €8 billion in marine equipment. Against this background, Greek marine equipment manufacturers appear to be in an advantageous position to access global value chains, using the influence of Greek ship-owners. However, this opportunity appears to be underexploited since Greek production is in the range of just €0.15 billion (about 0.1 per cent of global production). The weak spots of the Greek marine equipment industry are mainly concentrated in its supply-side characteristics (low cluster formation/sophistication, and limited innovative activity). While Greek marine equipment manufacturers exhibit signs of dynamism and a relatively healthy financial performance, they still have a long way to go towards the EU average. Based on NBG Research estimates, in the event technological investments and cluster development reach the level of the EU average, the Greek marine equipment production will reach €0.7 billion (from €0.15 billion in 2015) or 0.6 per cent of the global market (from 0.1 per cent in 2015). In order for this potential to be realized, the priorities are (i) to double R&D expenditures and channel them to niche markets (e.g. smart shipping) and (ii) to develop sector’s clusters, improve linkages with ship-owners associations and research centers, and form partnerships with similar clusters in the EU countries. Besides the abovementioned direct effects, the gradual increase of Greek participation in global value chains could lead to an additional economic benefit – mainly through technology spillovers and introduction to global high-tech networks. According to our estimates, these externalities (excluding the above-mentioned direct effect of additional €0.6 billion) average €0.4 billion, but in fact they could range from zero to €1.4 billion. Our view is towards the upside of this range of potential spillover effects, as the “neighboring”-to-marine equipment industries (i.e. manufacturing of metals, machinery and electrical equipment) are: (i) sizeable sectors (producing €10 billion per year and thus covering 30 per cent of the Greek manufacturing sector); and (ii) among the most competitive industries in Greece. Economic Analysis Division Eolou 86, 10232 Athens, Greece SECTORAL REPORT July 2016 NATIONAL BANK OF GREECE Marine Equipment Industry: How Greek ship- owners could stimulate the manufacturing sector Paul Mylonas, PhD NBG Group +30 210-3341521, e-mail: [email protected]
Transcript
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Greece, albeit a small country, has managed to stand out as a global leader in
shipping – with Greek ship-owners controlling about 16 per cent of the merchant
fleet. Apart from the widely acknowledged boost from net shipping receipts to the
Greek economy, a critical issue is to explore additional channels through which the
economic power of Greek ship-owners could feed into the Greek economy.
While global shipbuilding activity is largely concentrated (with 90 per cent being
built by Asian shipyards), the market for marine equipment is highly diversified in
an extensive network of global supply chains. NBG Research estimated that Greek
ship owners “control” about 1/10 of this market, by creating an annual demand of
about €8 billion in marine equipment.
Against this background, Greek marine equipment manufacturers appear to be in
an advantageous position to access global value chains, using the influence of
Greek ship-owners. However, this opportunity appears to be underexploited since
Greek production is in the range of just €0.15 billion (about 0.1 per cent of global
production).
The weak spots of the Greek marine equipment industry are mainly concentrated
in its supply-side characteristics (low cluster formation/sophistication, and limited
innovative activity).
While Greek marine equipment manufacturers exhibit signs of dynamism and a
relatively healthy financial performance, they still have a long way to go towards
the EU average. Based on NBG Research estimates, in the event technological
investments and cluster development reach the level of the EU average, the Greek
marine equipment production will reach €0.7 billion (from €0.15 billion in 2015) or
0.6 per cent of the global market (from 0.1 per cent in 2015). In order for this
potential to be realized, the priorities are (i) to double R&D expenditures and
channel them to niche markets (e.g. smart shipping) and (ii) to develop sector’s
clusters, improve linkages with ship-owners associations and research centers, and
form partnerships with similar clusters in the EU countries.
Besides the abovementioned direct effects, the gradual increase of Greek
participation in global value chains could lead to an additional economic benefit –
mainly through technology spillovers and introduction to global high-tech networks.
According to our estimates, these externalities (excluding the above-mentioned
direct effect of additional €0.6 billion) average €0.4 billion, but in fact they could
range from zero to €1.4 billion. Our view is towards the upside of this range of
potential spillover effects, as the “neighboring”-to-marine equipment industries (i.e.
manufacturing of metals, machinery and electrical equipment) are: (i) sizeable
sectors (producing €10 billion per year and thus covering 30 per cent of the Greek
manufacturing sector); and (ii) among the most competitive industries in Greece.
Greece, albeit a small country (covering just 0.5 per cent of world
GDP), has managed to stand out as a global leader in shipping –
with Greek ship-owners controlling about 16 per cent of the
merchant fleet. The magnitude of this achievement appears
impressive, considering that even Greece’s natural competitive
advantage – tourism – rates significantly lower in global ranks (with
Greek tourism receipts accounting for 1.4 per cent of the world
market).
Apart from the widely acknowledged boost of net shipping receipts
to the Greek economy (€8 billion per year during the past decade,
equivalent to 4 per cent of GDP), a critical issue is to explore
additional channels through which the economic power of Greek
ship-owners could feed into the Greek economy. Against this
background, an obvious channel could be their shipbuilding
expenditure which amounts to more than €9 billion per year. While
the global shipbuilding activity is highly concentrated (with 90 per
cent being built by Asian shipyards), the market for marine
equipment (65 per cent of the final vessel value) is highly
diversified in an extensive network of global supply chains. NBG
Research estimated that Greek ship owners “control” almost 1/10 of
this market, by creating an annual demand of about €8 billion in
marine equipment (either indirectly through shipyards or directly
through their repair and maintenance activity). However, while EU
countries produce more than ⅓ of the world supply of marine
equipment, Greek companies currently cover a mere 0.1 per cent
of the market.
In the following analysis, we will focus on: (i) the potential
dynamics of the Greek sector of marine equipment in the event
Greek ship-owners exercise the maximum force of their influence
in the shipbuilding market; as well as (ii) the potential spark that
will ignite the Greek manufacturing industry through the increased
participation in high-tech global value chains.
While the global shipping sector is expanding, Greek ship-
owners remain leaders
Following the increase in seaborne trade (by 6 per cent annually
during 1990-2015), the world merchant fleet capacity has tripled
NATIONAL BANK OF GREECE Sectoral Report July 2016 2
over the past 25 years, from 350 million GT in 1990 to 1.030 million
GT in 2015. With oil tankers capacity increasing marginally (by 5
per cent annually) and general cargo ships’ capacity shrinking, the
two main drivers of fleet expansion have been: (i) bulk carriers
mainly carrying raw materials to Asia (reaching 43 per cent of total
capacity in 2015 from 35 per cent in 1990); and (ii) containerships,
which facilitate intermodal transport (reaching 13 per cent of the
world fleet in 2015 from 4 per cent in 1990). Moreover, driven both
by cost-cutting efforts as well as the need to conform to new
environmental regulations, the global merchant fleet went through
an extensive modernization phase concerning emissions, waste
water treatment etc., with the average age of the world fleet
decreasing to 13 years in 2015, from 15 years in 1990.
Following this period of expansion and transformation, Greek ship-
owners continue to rank first, controlling 16 per cent of the world
merchant fleet capacity (and about 25 per cent of bulk carriers and
oil tankers, which account for 70 per cent of global capacity),
followed by Japan (14 per cent) and China (11 per cent). This
development has been achieved through extensive investment in
new ships by Greek ship-owners. In particular, during the past
decade, Greek-ship-owners have been placing ship orders of 10
million GT on average per year, corresponding to €9 billion (18 per
cent of world shipbuilding value)1. The payoff of this process is also
evident in the lower age of the Greek-controlled fleet. Despite the
upward bias stemming from the over-aged fleets of the smaller
companies, the average age of Greek-controlled vessels of more
than 1,000 dwt was reduced to 10 years in 2015 from 18 years in
1990 – reversing its gap with the world average to 3 years younger
in 2015 from 3 years older in 1990.
The expanding world fleet boosts – mainly Asian – shipyard
activity…
Shipbuilding activity has peaked during 2010-2012 with average
annual newbuilding capacity of about 100 million GT, before
1 This dominant position is expected to be sustained, as Greek interests cover about 15 per cent of shipbuilding
volume and current orderbook (based on February 2016 data) – similar to China – while Japan follows with 10 per cent of shipbuilding and 13 per cent of merchant fleet orderbook.
NATIONAL BANK OF GREECE Sectoral Report July 2016 3
returning in 2015 to its 10-year average of about 70 million GT.
Most of the shipbuilding activity takes place in Asian shipyards, as
China, South Korea and Japan cover 92 per cent of shipbuilding
volume in 2015 compared with 40 per cent in 1990 - with China
being the most prominent player (accounting for a share of about
40 per cent in 2015 versus 6 per cent in 2000). Other shipyards
with a smaller but growing orderbook are located in India, Vietnam,
the Philippines and Brazil (often controlled by Korean or European
companies).
European shipyards have been gradually losing market share in
shipbuilding volume, from 25 per cent in 1990 to less than 3 per
cent in 2015, mainly due to low cost competition from Asia.
However, while Asian shipyards are focused on ship types of low
complexity such as small tankers and bulk carriers (covering more
than ½ of Asian orderbook, compared with less than 10 per cent
in the EU), European shipyards have managed to retain most of
the shipbuilding activity of high-value-added ship types such as
cruise ships and special purpose vessels (LPG/LNG, offshore,
navy)2. These vessel types are priced higher than €2,000/GT,
compared with about €500/GT for bulkers and general cargo
vessels. As a result, in terms of shipyard turnover (taking into
account both new shipbuilding and repair/conversion activities),
European countries cover 20 per cent of the world market.
Based on market estimates, shipbuilding activity is expected to
remain close to the current level of about 70 million GT until 2020,
as weak industrial production in Asia (mainly China) creates a state
of overcapacity. Driven by the “usual suspects” (i.e. global
economic upturn and the need for fleet replacement mainly
reflecting stricter environmental requirements), the next
shipbuilding cycle is expected to peak during 2025-2030, at about
90-100 million GT (close to the previous peak level of 2011).
2 Most of the shipbuilding and repair/conversion activity is concentrated in large shipyards like Meyer Werft in
Germany, building container ships, cruise and special purpose vessels, Fincantieri in Italy, mainly building cruise ships and ferries and its subsidiary Vard in Norway and Romania, building cruise, offshore and other specialized vessels.
mil GT% of
shipyard
China 75 7,5 10%
S. Korea 56 11,4 20%
Japan 40 1,9 5%
Other 29 7,1 24%
Total 201 27,9 14%
* concerning cargo carrying ships
Source: The Shipbuilder's Association of Japan
Total*
(mil. GT)Shipyard
Greek-owned
Merchant fleet orderbook (Dec. 2015)
NATIONAL BANK OF GREECE Sectoral Report July 2016 4
It is important to note the importance of Greek ship-owners for the
activity of Asian shipyards (where about ¾ of current Greek-
controlled orderbook is directed). In particular, Greek orders cover
20 per cent of Korean shipyards’ turnover, 10 per cent of Chinese
shipyards’ turnover and 5 per cent of Japanese shipyards’ turnover.
… while the increasing shipyard activity, in turn, supports
the globalized marine equipment industry
Shipbuilding and ship repair activities create a demand for marine
equipment, concerning products such as machine engines,
navigation systems, electrical and electronics systems, as well as
metal products and materials, paints, ropes, wires etc. This market
is clearly diverse and not easily specified. It is estimated that the
global marine equipment market covers about 65 per cent of the
cost of shipbuilding (varying among different ship types and the
level of required sophistication).
Driven by increasing shipbuilding orders during the previous
decade, the global production of marine equipment reached €120
billion in 2015 (almost double compared with 2000). While
shipbuilding activity has become increasingly concentrated, marine
equipment production is more dispersed in the context of an
extensive network of global value chains. Specifically, 37 per cent
of marine equipment market is served through international trade
flows in 2015, compared with 25 per cent in 2000. Against this
background, shipbuilding has become a sector with one of the
highest participation rates in global value chains (GVCs)3 (about 32
per cent versus a world average of 26 per cent), reflecting mainly
the above-mentioned high share of marine equipment being
imported.
Trade of marine equipment flows both inter-regionally (mainly from
EU to Asia) and intra-regionally (mainly intra-EU):
Turning to inter-regional trade, the EU produces a surplus
amounting to around 6 per cent of the global market (as
3 Along with the increase in global trade during the past twenty years, there is a growing development of GVCs,
meaning a higher use of imported inputs for a production process as well as a higher share of exported outputs.
NATIONAL BANK OF GREECE Sectoral Report July 2016 5
EU countries have a share of 34 per cent in supply and 28
per cent in demand), which mainly is directed to cover
Asia’s deficit (as Asian countries generate 49 per cent and
absorb 55 per cent of the world marine equipment
production).
Regarding intra-regional trade, EU countries depend more
on intra-regional trade (covering approximately ⅓ of the
region’s demand), while Asian countries appear to be the
most self-sufficient (with intra-regional trade covering 14
per cent of the region’s demand).
EU countries are the most export-oriented, exporting 57 per cent
of production (about 45 per cent concerning intra-EU trade).
Germany is the largest EU exporter (supplying more than ⅓ of EU
exports), followed by Italy, the UK, The Netherlands and France,
each having a market share of about 8-10 per cent.
During the past decade, EU exports increased by about 25 per cent
from €20 billion in 2005 to about €25 billion in 2015, covering 55
per cent of world exports (down from 67 per cent in 2005). This
increase mainly reflected higher demand from Asia (covering 30
per cent of EU exports in 2015 compared with 17 per cent in 2005),
while the level of intra-EU trade remained broadly unchanged. Note
that China, in particular, absorbed 13 per cent of EU exports in
2015 compared with 7 per cent in 2005. As higher demand from
Asia was also covered through intra-Asia trade, the above-
mentioned increase in EU exports to Asia was just enough to
maintain EU penetration in Asian markets at the same level (about
40 per cent).
It should be noted that there are certain differences concerning
specific types of marine equipment. For instance, EU countries
appear to cover more than ½ of Asian imports of propulsion
systems (machine engines), compared with only 14 per cent in
navigation systems (mainly covered from intra-Asia imports). This
type of marine equipment is the main focus of German exports,
which is a key player in marine equipment destined for Asia,
covering 45 per cent of EU exports to Asia compared with 31 per
cent of EU exports to other destinations.
NATIONAL BANK OF GREECE Sectoral Report July 2016 6
Turning again to the Greek ship-owners’ prominent position in the
markets related to shipping, NBG Research estimated that Greek
ship-owners create an annual demand of about €8 billion in marine
equipment, of which €6 billion concern the building of new ships
(through shipyards) and the remaining €2 billion concern direct
expenditure by shipping companies for repairs and fleet
maintenance (spare parts, etc.).
Supply-side weaknesses hinder Greek manufacturers from
capturing a sizeable share of the global marine equipment
market
Combining the above-mentioned points, Greek marine equipment
manufacturers appear to be in an advantageous position to gain
access to the GVCs’ network of the shipbuilding sector, using the
influence of Greek ship owners. Specifically, during the shipbuilding
process, there is a dynamic interaction between ship-owners and
shipyards concerning the selection of marine equipment suppliers.
At first, the list of eligible suppliers is prepared by the shipyard by
taking into account the recommendations of the customer. Then,
from this list and based on the desired specifications for each type
of delivery (considering factors such as quality, cost and degree of
sophistication), the final choice is made by the shipyard. In this
context, Greek ship-owners could use their influence in order for
the Greek manufacturers to be included in the shipyards’ suppliers
list and thus have a fair chance to be the selected suppliers (in case
they offer the best price-quality combination). In this case, Greek
ship-owners (i) will intensify the competitive forces during the
selection process (with favorable results regarding lower prices
and/or higher quality), (ii) will have easier communication with the
suppliers – in cases that Greek manufacturers would be selected,
and (iii) could move towards vertical integration by acquiring
shares in Greek marine equipment companies.
However, this opportunity appears to be underexploited since
Greek production is in the range of just €0.15 billion –
corresponding to 0.1 per cent of the global market. The marine
equipment output of Greek companies mainly concerns: (i) ship
operation equipment (mainly mooring equipment) and cargo
NATIONAL BANK OF GREECE Sectoral Report July 2016 7
handling equipment (mainly wire ropes, cables, anchors); as well
as (ii) high value added products such as auxiliary systems for
environmental protection and safety (e.g. ballast water treatment),
navigation and bridge control and other electronics and IT systems.
In fact, focusing on the sub-segments that Greek manufacturers
are more active (cargo handling equipment, ship operation
equipment and auxiliary systems, covering ⅓ of the total market),
Greece’s market shares in the respective markets remain extremely
low (in the range of 0.3 per cent).
In order to explore the potential growth of the sector of marine
equipment and determine what factors may currently limit its
development, NBG Research has constructed an econometric
model (see Appendix) based on a global sample of 33 countries,
examining the combined effect of two broad types of variables:
Demand variables index: (i) each country’s share in the
world shipyard activity; and (ii) each country’s share in the
world fleet
Supply variables index: (i) each country’s size; (ii)
technology level; and (iii) cluster sophistication.
From the demand side, marine equipment production is directly
absorbed by shipyards or by shipping companies (for repairs and
replacement of parts). However, as mentioned above, there is also
an indirect channel through which ship-owners can influence the
shipyards’ choices.
Turning to supply side considerations, an integral part of marine
equipment competitiveness is technology, especially as
specifications become more complex, with advanced systems
required in terms of mechanics, navigation, safety and
environmental protection. Based on our Technology Index4, most
developed countries in this area are Korea, Finland and Sweden.
Moreover, cluster sophistication appears to be an important tool
for entering high-tech global value chains, with countries like
Germany, the US and Italy being the most advanced in this area.
4 To approach the technological level of production we have constructed a technology index, consisting of three,
equally weighted components: Business enterprise R&D as percent of GDP, Number of researchers per 1,000 employees, Index for the availability of latest technologies reflecting the views regarding the degree of absorption of latest technologies by the business sector (sources: OECD and WEF).
NATIONAL BANK OF GREECE Sectoral Report July 2016 8
Finally, it is important to control the effect of the size of the
economy of each country, as high impact countries such as China
(covering 14 per cent of world exports), the US and Germany
(about 10 per cent each) have a natural advantage in gaining
excess to highly competitive global markets (through exploiting
both bargaining power and economies of scale).
By combining the above factors through econometric modelling,
the share of each country in the global production of marine
equipment production is explained to a large extent (R2= 87 per
cent), with countries with powerful combinations of demand-
related and supply-related attributes (mainly China, Japan, Korea,
the US and Germany) capturing double-digit shares of the world
market.
Under this approach, Greece produces a fair value share in the
world marine equipment market close to its realized one (0.1 per
cent of the market), as:
In the demand index, Greece ranks rank close to the EU
average (7 per cent lower) as, despite being a world leader
in terms of fleet ownership, this effect is counterbalanced
by the very limited shipyard activity – covering about 0.2
per cent of world shipyard turnover (lower even than its
share in world GDP which is about 0.5 per cent). Note that
European countries such as Norway, Italy and Germany
maintain a relatively high ranking both in terms of fleet
control and shipyard activity.
However, in terms of supply-related variables, the
characteristics of the Greek business environment lead to
an index 47 per cent lower than the EU average (ranking
last among the examined sample). This is a combined
result of low rankings in the three main index components:
(i) being a small country, Greece has a low share of about
0.1 per cent in total world exports (excluding fuel), which
translates into limited access to global networks; (ii)
cluster formation in Greece is considered underdeveloped
(based on the Global Competitiveness Index), ranking 33
per cent lower than the EU average; and (iii) the
NATIONAL BANK OF GREECE Sectoral Report July 2016 9
technology level5 in Greece is about 35 per cent lower than
the EU average (mainly because of limited R&D
investments), while the most developed countries are
Korea, Finland and Sweden.
Therefore, the weak spots of the Greek marine equipment market
are mainly concentrated on its supply-side weaknesses, mainly
limited innovative activity and clustering).
The Greek marine equipment sector exhibits signs of
dynamism
While shipbuilding activity in Greece has declined significantly
during the past decade (with shipyard turnover about €50 million
in 2013 compared with about €0.5 billion during 2003-2005),
marine equipment manufacturers have managed to take
advantage of the increase in global demand and more than double
production during the past fifteen years. Specifically, sales of
marine equipment reached about €150 million in 2015, from €60
million in 2000.
This was achieved through a significant export orientation, either
through direct exports or through sales of spare parts to shipping
companies in Greece and then exported to shipyards. In fact, about
60 per cent of their turnover is directed abroad (compared with 15
per cent on average for Greek manufacturing – excluding fuel),
while their extroversion has increased by 11 per cent annually on
average during the past decade (compared with 4 per cent for
destinations, about 40 per cent is directed to other EU countries
and the rest mainly to Asian countries (China, South Korea and
Japan).
These positive characteristics are reflected in a healthy financial
performance, as the sector: (i) remained profitable throughout the
economic crisis, (ii) performs better than the rest of the Greek
manufacturing sector (excluding coke manufacturing) and (iii) has
similar ratios with European marine equipment producers
(including listed companies with a global presence). Specifically:
5 Greece’s low technology index is the weighted average of the following sub-indices: (i) Business enterprise R&D
(%GDP) (ii) Number of researchers per employee and (iii) The WEF index for the availability of latest technologies.
NATIONAL BANK OF GREECE Sectoral Report July 2016 10
During the high growth period of 2005-2008, the sector
grew by 18 per cent annually on average, compared with 15
per cent in Europe and 4 per cent in Greek manufacturing.
With an advantage in terms of profitability, a slightly higher
asset turnover and lower leverage, Greek marine
manufacturers outperformed both benchmarks in
productivity, with ROA at 11 per cent, compared with 7 per
cent in Europe and 4 per cent in Greek manufacturing.
During 2009-2014, the sector posted a slowdown, however,
sales continued to grow at an average annual rate of 4.7
per cent, while Greek manufacturing posted an average
annual drop of 5 per cent. The significant lead in the high
growth period kept the sector close to its European
counterparts. The combination of a still high EBITDA (13 per
cent) and low leverage (debt to equity less than 1) allows
the sector to have a healthy net profit margin before taxes
(9 per cent, compared with 8 per cent in Europe and -0.3
per cent in Greek manufacturing) and to easily cover its loan
obligations (with a debt-to-ebitda ratio of 2.3 compared with
7.7 for Greek manufacturing).
By intensifying, supporting and broadening this effort, the
marine equipment industry could directly boost Greek GDP
by €0.6 billion per year…
While the efforts of Greek marine manufacturers appear to be in
the right direction, they still have a long way to go towards the EU
average. Based on NBG Research estimates, in the event
technological investments and cluster development reach the levels
of the EU average, the Greek sector of marine equipment has a
dynamic to reach sales of €0.7 billion (from €0.15 billion in 2015).
Specifically, the technology upgrade could increase the Greek
market share from 0.1 per cent to 0.4 per cent of world market,
which is equivalent to an annual sales benefit of €0.3 billion. To
reach the EU-average, Greek manufacturers should intensify their
innovation activities by doubling their R&D expenditures to 5 per
cent of sales (i.e. the average of EU marine equipment
manufacturers) from 2.5 per cent of sales in 2015. Apart from
GR marine
equipment
GR
manufact.
EU marine
equipment*
Average annual
sales growth18% 4% 15%
ROA (pre-tax) 11% 4% 7%
ROE (pre-tax) 20% 10% 20%
EBITDA margin 17% 12% 14%
Net profit margin
(pre-tax)12% 6% 9%
Asset turnover 0,86 0,76 0,80
Debt to Equity 0,9 1,4 1,5
Debt to EBITDA 1,7 3,5 2,1
Interest coverage 8,7 3,7 6,3
Operating Cycle
(Days):237 178 71
-Accouts receivable 194 158 69
-Stock 119 106 82
-Accouts payable 76 86 80
Financial performance 2005-2008
Source: ICAP, Factset, NBG estimates
* The European sector for marine equipment concerns listed groupswith global presence in the marine equipment sector
GR marine
equipment
GR
manufact.
EU marine
equipment*
Average annual
sales growth4,7% -5,0% 4,4%
ROA (pre-tax) 6% 0% 6%
ROE (pre-tax) 11% -1% 15%
EBITDA margin 13% 7% 13%
Net profit margin
(pre-tax)9% 0% 8%
Asset turnover 0,71 0,66 0,72
Debt to Equity 0,9 1,6 1,4
Debt to EBITDA 2,3 7,7 2,2
Interest coverage 5,8 1,0 6,5
Operating Cycle
(Days):254 189 64
-Accouts receivable 199 172 76
-Stock 156 113 69
-Accouts payable 102 96 82
* The European sector for marine equipment concerns listed groupswith global presence in the marine equipment sector
Source: ICAP, Factset, NBG estimates
Financial performance 2009-2014
NATIONAL BANK OF GREECE Sectoral Report July 2016 11
higher R&D expenditures, it is equally important to target this
innovation effort strategically (i.e. towards high-growth segments
and away from segments that are already controlled by large
players e.g. German manufacturers in propulsion systems).
Indicatively, we distinguish “smart shipping” concerning the
development of specialized software and applications (e.g. for
engine monitoring or weather routing) for optimum ship operation
in terms of safety and energy efficiency.
In addition, the improvement in cluster sophistication to the EU
average could further increase the Greek market share to 0.6 per
cent of world market, thus producing additional annual sales of
€0.3 billion. According to the literature6, the key strategic priorities
that would improve Greek sector’s effectiveness and close the gap
with the more mature EU clusters are:
to form partnerships and affiliations with mature clusters
in other EU countries, such as the Industrial Association of
German marine and offshore equipment (VDMA),
to improve linkages with (i) clients’ associations (e.g. Union
of Greek Ship-owners) through working groups and
advisory committees, as well as (ii) research and academic
institutions which would foster more effective R&D activity
(especially for the smaller enterprises), and
to develop industry clusters with presence in strategic
locations through permanent offices or representatives
(which is beneficial in terms of lobbying and interaction
with local partners).
Therefore, in this scenario, Greece could capture the 0.6 per cent
of the global marine equipment market (from 0.1 per cent in 2015)
– corresponding to 1.5 per cent of the relevant for Greek
manufacturers markets (from 0.3 per cent in 2015, see p. 7).
6 i) Michael E. Porter, “Clusters and the New Economics of Competition”, Harvard Business Review (Nov-Dec 1998),
ii) Clusters Linked over Europe (CLOE), “Guidelines for the development and management of cluster initiatives”, EU INTERREG IIC program 2006, iii) EU-INNO Germany AG, “Clusters and clustering policy”, 2010.
NATIONAL BANK OF GREECE Sectoral Report July 2016 12
… while the indirect benefits through technology spillovers
could amount to up to €1.4 billion
Besides the above-mentioned direct effects, the gradual increase
of Greek participation in global value chains (GVCs) could lead to
an additional economic benefit – mainly through technology
spillovers and introduction to global high-tech networks. Note that
this development could act as a critical trigger, since the
participation of the Greek industry to GVCs is low (with 43 per cent
of our exports being either raw materials for foreign exports or
have an imported input component, compared to an average global
ratio of 52 per cent).
In particular, past experience indicates a correlation of about 65
per cent between the growth rate in the GVC participation index
and the increase in GDP per capita (see graph). Based on this
observed pattern, the increase in GVC participation by 2.5 per cent
(caused by the higher marine equipment exports) is expected to
increase Greek GDP by 0.6 per cent (€0.6 billion directly and €0.4
billion indirectly). Note, however, that the nature of the spillover
effects has, by definition, a high random component. In practice,
the indirect effect appears to vary between ½ of the average
estimate (e.g. in the case of Indonesia) to double the average
estimate (e.g. in The Netherlands). Therefore, these externalities
for Greece (excluding the direct effect of €0.6 billion on marine
equipment manufacturing) average €0.4 billion but, in fact, they
could range from zero to €1.4 billion.
Our view is towards the upside of this range of potential spillover
effects, as the “neighboring”-to-marine equipment sectors (i.e.
manufacturing of metals, machinery and electrical equipment)
cover 30 per cent of the Greek manufacturing sector (excluding
fuel) with annual sales of €10 billion, and are among the most
competitive industries in Greece. In fact, these Greek sectors:
invest 0.8 per cent of their annual sales in R&D, compared
with 0.3 per cent in Greek manufacturing
are export-oriented and have a high share of exports with
competitive advantage (40 per cent of their exports
compared with 16 per cent in Greek manufacturing),
NATIONAL BANK OF GREECE Sectoral Report July 2016 13
are comparable with their European competitors in terms of
labor productivity, while other manufacturing sectors have
a considerable gap of about 40 per cent.
NATIONAL BANK OF GREECE Sectoral Report July 2016 14
Appendix: Econometric model
NBG Research estimated a model to determine the potential of Greek marine equipment production. Specifically,
the model is based on cross-section data for a global sample of 33 countries, accounting for about 90 per cent
of world marine equipment production.
To estimate the fair value of the market share in global marine equipment production (dependent variable), we
have considered two types of explanatory variables:
Demand Index, which represent the main sources of demand for marine equipment, which are shipyards
and ship-owners. We calculate a Demand Index as follows:
Demandi = 70%*[shipyardi] + 30%*[ownershipi]
Where:
Shipyardi = the share of country i in world shipyard turnover
Ownershipi = 50%*[share of country i in fleet ownership] + 50%*[share of country i in shipbuilding
volume]
The weights of each variable in the demand index are a result of a separate regression.
Supply Index, which represent country-specific factors affecting the quantity and quality of marine
equipment production. Specifically, we consider: i) the size of the economy (based on exports); ii) the
technological level; and iii) the degree of cluster development. We calculate the Supply Index as follows:
Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Malta, The Netherlands, Norway,
Poland, Portugal, Romania, South Korea, Slovakia, Slovenia, Spain, Sweden, Turkey, the UK, the USΑ.
NATIONAL BANK OF GREECE Sectoral Report July 2016 15
NATIONAL BANK OF GREECE
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