Assessment of the Global Value Chain in Croatia Environment-Friendly Transport Solutions Assessment of the Global Value Chain in Croatia: Environment-Friendly Transport Solutions Croatia Competitiveness Reinforcement Initiative December 2017 This document is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank, the governments they represent, or the Government of Croatia. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. This report was prepared by a team from the World Bank (Ružica Jajčević and Justin Yap) and the Center for Industrial Development (Centar za industrijski razvoj, CIRAZ) (Helena Đerek and Dijana Varlec). Kazimir Luka Bačić and Sandra Cordova Solis also contributed to this document. Funding for this report was provided by the European Commission through the Operational Program for Competition and Cohesion. Acronyms AIK Agencija za investicije i konkurentnost (Agency for Investments and Competitiveness) CAGR Compound Annual Growth Rate CGT Compensated Gross Tonnage CIRAZ Centar za industrijski razvoj (Center for Industrial Development) CSC Croatian Shipbuilding Corporation DWT Deadweight EC European Commission ECSA European Community Shipowners' Associations EFTS Environment-Friendly Transport Solution(s) EIB European Investment Bank EU European Union EV Electric Vehicle FDI Foreign Direct Investment FINA Financial Agency FP7 Seventh Framework Program GDP Gross Domestic Product GVC Global Value Chain HBOR Hrvatska banka za obnovu i razvitak (Croatian Bank for Reconstruction and Development) HGK Hrvatska Gospodarska Komora (Croatian Chamber of Economy) IEA International Energy Agency ITS Intelligent Transport Systems KET Key Enabling Technology LNG Liquefied Natural Gas M&E Monitoring and Evaluation MINGPO Ministry of Economy, Entrepreneurship, and Crafts NACE Nomenclature des Activités Économiques dans la Communauté Européenne (Statistical Classification of Economic Activities in the European Community) OECD Organization for Economic Co-Operation and Development OEM Original Equipment Manufacturer PHEV Plug-in Hybrid Electric Vehicle R&D Research and Development RDI Research, Development and Innovation STPA Subthematic Priority Area S3 Smart Specialization Strategy SOE State-Owned Enterprise TPA Thematic Priority Area SDG 13 Sustainable Development Goal 13 Table of Contents 1. Context ................................................................................................................................................. 1 2. Cluster Profile ..................................................................................................................................... 5 2.1. Overview ....................................................................................................................................... 5 2.1.1. History and Significance of the Industry in Croatia.............................................................. 5 2.1.2. Smart Specialization Strategy and the STPA ........................................................................ 7 3. National Supply Profile .................................................................................................................... 10 3.1. Production ................................................................................................................................... 10 3.1.1. EVs and Electric Bikes ....................................................................................................... 10 3.1.2. Maritime Industry ............................................................................................................... 10 3.2. Exports ........................................................................................................................................ 12 4. Industry Functioning ........................................................................................................................ 15 4.1. Economic Geography.................................................................................................................. 15 4.1.1. Number of Firms ................................................................................................................. 15 4.1.2. Clustering of Firms ............................................................................................................. 16 4.2. Profitability Analysis .................................................................................................................. 17 4.2.1. Assets, Debt, and Revenue .................................................................................................. 18 4.2.2. Employees ........................................................................................................................... 20 4.2.3. Cost Structure and Margins................................................................................................. 20 4.3. Productivity and Innovation ........................................................................................................ 22 4.3.1. Productivity ......................................................................................................................... 22 4.3.2. Innovation ........................................................................................................................... 23 5. Cluster Figures: Market-Based Actors ........................................................................................... 24 5.1. Core Firms .................................................................................................................................. 25 5.1.1. Notable Firms...................................................................................................................... 25 5.2. Other Agents ............................................................................................................................... 27 5.2.1. Input Providers .................................................................................................................... 27 5.2.2. Buyers ................................................................................................................................. 27 5.3. FDI in the STPA ......................................................................................................................... 28 6. Cluster Agents: Cross-Cutting Support Bodies ............................................................................. 30 6.1. Professional Associations and Cluster Organizations ................................................................. 30 6.1.1. Cluster Organizations.......................................................................................................... 30 6.2. Academic, Vocational, and Research Bodies ............................................................................. 31 6.3. Public Sector ............................................................................................................................... 31 6.3.1. Sector Support, Policy, and Intervention ............................................................................ 31 7. Assessment on Cluster Interactions................................................................................................. 33 7.1. Relationship of Cluster Agents ................................................................................................... 33 7.2. Takeaway for the Change Management Process ........................................................................ 33 Bibliography .............................................................................................................................................. 34 1. Context The overall objective of the current technical advisory services is to assist and support the Ministry of Economy, Entrepreneurship, and Crafts in its efforts to strengthen Croatia’s clusters position in selected global value chains (GVCs) according to 13 thematic and subthematic priority areas (STPA) as defined under the Croatian Smart Specialization Strategy (S3). The current advisory work consists of the following five components: • Component 1: Strengthening the Capacity of Beneficiaries and Partners • Component 2: Strategic Analysis and Competitive Positioning • Component 3: Action Plans and Policy Design • Component 4: Design of Academy for Industrial Development (AID) • Component 5: Monitoring and Evaluation The list of deliverables under the current project is presented in Table 1. Table 1: Project Deliverables by Component Component Deliverables Component 1 1. Programs and training modules and a comprehensive set of teaching materials to train the client and Croatian Chamber of Economy (Hrvatska Gospodarska Komora, HGK) competitiveness experts 2. Six modules of five days of training taught by international professors (at least 18 trained competitiveness experts in beneficiaries and partners) Component 2 3. Report on ‘Assessment of GVC Positioning of the STPA’ (7 documents, 1 document for (STPAs 1–7) each of STPAs 1 to 7) 4. Report on ‘Strategic Segmentation’, covering the following sections: industry analysis, strategy diagnostic and roadmap, and short- and long-term strategic plan (7 documents, 1 document each for STPAs 1 to 7) Component 3 5. Report on ‘Investment Plan Proposal’ containing partnerships for joint investments to (STPAs 1–7) improve the position in GVC for each STPA (1 document for the group of STPAs 1 to 7) 6. Report on ‘Action Plan to Strengthen the Position of Croatia in Selected GVCs’ containing short-term measures that could be implemented within 2 years as well as measures for the midterm and long term (1 document for the group of STPAs 1 to 7) 7. Report on ‘FDI Strategy’ covering the following sections: identification of niches and markets to attract foreign direct investment (FDI), Action Plan to attract investment in high- technology sectors and emerging industries, and Action Plan for FDI promotional activities with a marketing plan and branding strategy (1 document for the group of STPAs 1 to 7) 8. Report on ‘Export Strategy’ covering the following sections: list of products, services, and markets for prioritization and Action Plan for the promotion of exports (1 document for the group of STPAs 1 to 7) 9. Report on ‘Territorial and Product Branding Strategy’ covering the following sections: list of Croatian brands and territorial and product brands in GVCs and Action Plan for territorial and product branding (1 document for the group of STPAs 1 to 7) Component 2 10. Report on ‘Assessment of GVC Positioning of the STPA’ (6 documents, 1 document (STPAs 8–13) each for STPAs 8 to 13)a 11. Report on ‘Strategic Segmentation’, covering the following sections: industry analysis, strategy diagnostic and roadmap 2, and short- and long-term strategic plan (6 documents, 1 document each for STPAs 8 to 13) 1 Component 3 12. Report on ‘Investment Plan Proposal’ containing partnerships for joint investments to (STPAs 8–13) improve the position in GVC for each STPA (1 document for the group of STPAs 8 to 13) 13. Report on ‘Action Plan to Strengthen the Position of Croatia in Selected GVCs’ containing short-term measures that could be implemented within 2 years as well as measures for the midterm and long term (1 document for the group of STPAs 8 to 13) 14. Report on ‘FDI Strategy’ covering the following sections: identification of niches and markets to attract FDI, Action Plan to attract investment in high-technology sectors and emerging industries, and Action Plan for FDI promotional activities with a marketing plan and branding strategy (1 document for the group of STPAs 8 to 13) 15. Report on ‘Export Strategy’ covering the following sections: list of products, services, and markets for prioritization and Action Plan for the promotion of exports (1 document for the group of STPAs 8 to 13) 16. Report on ‘Territorial and Product Branding Strategy’ covering the following sections: list of Croatian brands and territorial and product brands in GVCs and Action Plan for territorial and product branding (1 document for the group of STPAs 8 to 13) Component 4 17. ‘Guidelines on Design and Management Model for AID’ containing the following sections: proposal for operational concept and management model for AID, Action Plan for AID, and proposal of the content for the first summer school for competitiveness’ 2 -week program (1 document) 18. 1 set of (minimum 8) developed educational modules for entrepreneurs at AID 19. Training sessions for trainers (at least 16 certified trainers) Component 5 20. Report on ‘Monitoring and Evaluation (M&E) of Cluster Initiatives’ b (1 document) 21. Two training sessions on M&E for the beneficiary institution Note: a. This document will aggregate the information from the individual clusters into a single report, which will include information on (i) first results of the Value Chains Enterprise Survey and (ii) Croatian Value Chains Maps assessment. b. This report will present the M&E framework and key performance indicators. In the context of Components 2 and 3, the methodology for analyzing the industry-specific GVC of each STPA follows the 10-step approach listed in Box 1. Box 1: Cluster-Level GVC to Reinforce Competitiveness The methodology for the analysis of Croatian industry from an industry-specific GVC perspective is adapted from the ‘10 steps’ commonly used to analyze the competitiveness of clusters and identify strategic options for their growth: 1. Mapping of the value chain activities in the STPA 2. Existing and emerging strategic segments globally for each STPA 3. Strategic segments attractiveness evolution globally 4. Advance global buyers purchase criteria for each segment 5. Generic strategic options for each segment 6. Key success factors of each segment 7. Ideal value chain and supporting environment for each segment 8. Segment suitability in function of value chain gaps and policy choices 9. Options for company position in the new segment 10. Definition of areas to improve at company, cluster, and policy levels This document constitutes Deliverable 10 (‘Assessment of GVC Positioning of the STPA’) of the current project. It presents the results of the data collection on Croatian industry at the national level and presence of activities in the GVC, needed as step 1 of the 10 steps described in Box 1. This information 2 comes from secondary data and from direct company and institution interviews; unfortunately, due to delays in the company interviews, it lacks that information, but it is expected to be complemented during the rest of the project. The bulk of the analysis under Component 2 comes in the next Deliverable 11 (‘Strategic Segmentation’) that includes the industry analysis, strategy diagnostic and roadmap, and short- and long-term strategic plan (steps 2 through 9 of the 10 steps described in Box 1). • Background and contextual industry research is conducted to identify industry dynamics and trends related to global supply, industry cost structure and margins, and recent evolution in the value chain structure. • The industry is grouped into strategic segments that reflect not only the mix of products and services that are offered, but also the users and markets that are served (Porter 1985). • For each strategic segment, Porter’s ‘Five Forces’ analytical tool is used to assess industry attractiveness by determining the profitability of the industry and identifying the actors within the industry with the most bargaining power (thereby determining which actors appropriate the bulk of the available profits) (Porter 1979). This analysis studies the trends in attractiveness by looking at the forces in the recent past (before entering new Free Trade Agreement [FTA], for example) and in the next 5–10 years, considering the structural industry trends. • The advanced buyer purchase criteria, generic strategic options, and the key success factors are used to determine the ideal value chain for each segment and identify the necessary value chain systems that need to exist at local, national, and regional levels within a country’s ecosystem for it to compete well. • More attractive, higher-value-added segments that could allow Croatian industry to appropriate more value will be highlighted. The ‘ideal value chain’ for those segments will be compared to the Croatian context, which will itself be compared to leading countries in the highlighted segment(s) to assess Croatia’s potential capacity to compete. The third set of deliverables (12, 13, 14, 15, and 16) defined under Component 3 covers the specific policy, investments, and/or institutional interventions that will be required for Croatia to ‘leap’ to those segments. That is step 10 in the 10 steps described in Box 1. • Deliverable 12: Report on ‘Investment Plan Proposal’ containing partnerships for joint investments to improve the position in GVC for each STPA • Deliverable 13: Report on ‘Action Plan to Strengthen the Position of Croatia in Selected GVCs’ containing short-term measures that could be implemented within two years as well as measures for the midterm and long term • Deliverable 14: Report on ‘FDI Strategy’ covering the following sections: identification of niches and markets to attract FDI, Action Plan to attract investment in high-technology sectors and emerging industries, and Action Plan for FDI promotional activities with a marketing plan and branding strategy 3 • Deliverable 15: Report on ‘Export Strategy’ covering the following sections: list of products, services, and markets for prioritization and Action Plan for the promotion of exports • Deliverable 16: Report on ‘Territorial and Product Branding Strategy’ covering the following sections: list of Croatian brands and territorial and product brands in GVCs and Action plan for territorial and product branding. 4 2. Cluster Profile 2.1. Overview According to the International Energy Agency (IEA), the transport sector is the second largest contributor to global CO2 emissions after electricity and heat generation (IEA 2016). Pollution caused by transport accounts for 23 percent of global emissions and, driven mainly by the road sector, has increased by 71 percent since 1990. The negative health effects of pollution also have a severe economic cost, which has been estimated at US$1.7 trillion in OECD1 countries alone (OECD 2014). In response to this challenge, governments and nongovernmental organizations alike have adopted various policy recommendations and action agendas, not least of which is Sustainable Development Goal 13 (SDG 13) of the Paris Agreement on Climate Change. SDG 13 targets, among other things, the application of environment-friendly solutions and approaches to transportation to achieve a zero-emissions economy by 2050 (World Bank 2017). Transformation and ‘greening’ are already buzzwords in the automotive industry. While the first policies to encourage the development and adoption of electric vehicles (EVs) were enacted almost 50 years ago, until quite recently high costs and low demand limited the growth of EVs and other ‘environment- friendly transport solutions’ (EFTS). However, as can be observed from the proliferation of EVs and plug- in hybrid vehicles (PHEVs) on streets in cities around the world, this has already begun to change dramatically. While EVs and PHEVs today account for about 1 percent of vehicles produced worldwide, by some estimates EV sales will outstrip those of conventional-fuel vehicles within two decades. And, while the rise of EVs and PHEVs is a widely recognized development, the maritime transport industry has also been targeted for greening initiatives. The European Union (EU) h2as identified opportunities to reduce emissions from maritime vessels; these opportunities range from the use of alternative fuels and renewable energy (for example, wind energy, photovoltaics, wave energy, and biofuels) to an emphasis on hybrid technologies (Parliament 2015). Nonetheless, for the maritime sector, the commercial viability of wholesale green solutions remains more distant than in the automotive sector. While the subject of this report is EFTS, the entire transportation industry is already in the midst of a wholesale shift toward environmental sustainability. For example, a number of countries including China, France, and the United Kingdom have set targets for banning the sale of gasoline-powered automobiles. Thus, although Croatia’s S3 does implicitly draw a distinction between ‘environment- friendly’ and ‘non-environment-friendly’ transportation, it should be noted that such differences are increasingly irrelevant as the entire industry orients itself toward environment-friendly solutions. 2.1.1. History and Significance of the Industry in Croatia 2.1.1.1. Automotive Industry Croatia has an active automotive component manufacturing industry but there are no major original equipment manufacturers (OEMs). Croatia’s automotive industry is a legacy of vehicle production patterns in the former Yugoslavia, where truck and passenger car manufacturing activity was located mainly 1Organization for Economic Co-operation and Development. 2 For more information, see https://www.bloomberg.com/news/articles/2017-07-06/the-electric-car-revolution-is- accelerating. 5 in Slovenia, Serbia, and Bosnia through collaborations with Renault, Volkswagen, and Fiat. Croatia’s participation in automotive manufacturing was and is limited almost exclusively to the production of component parts. Today, this production calls on significant inherited expertise in metal processing and metal tool production, plastics manufacturing, glass manufacturing, and textiles. Manufacturing facilities are located in Istria, Varaždin, Brod-Posavina, Split-Dalmatia, and Zagreb. The industry has managed to consolidate its market position and has grown at a robust 8 percent a year over the past 10 years. Figure 1: Export and Annual Growth of Car Parts in Croatia before and after 2009 Source: United Nations Comtrade data. 2.1.1.2. Maritime Industry Croatia has a long tradition of shipbuilding that has faced significant structural adjustments in recent years. Industrial production in Croatian shipyards dates back to the 19th century but took off after World War II, when commercial fleet orders from the former Soviet Union formed a large proportion of Croatian business. Toward its peak, roughly in the late 1980s, the Croatian shipbuilding industry could boast of being the world’s third largest producer in terms of deadweight (DWT) volumes.3 After the breakup of the Soviet Union and, ultimately, of the former Yugoslavia, Croatian boatbuilding and shipbuilders switched mainly to buyers in Western Europe (Senjanović, 2011). The country’s strong competitive position continued into the 1990s and the early 2000s. In 2005, Croatia had 69 ships on its order book and ranked as the world’s fourth largest ship producer. In fact, shipbuilding was arguably one of a few industries in which Croatia could truly be said to be a world leader (Karačić, 2013). The global shipbuilding sector has since seen a shift in production toward East Asia, particularly China and the Republic of Korea; this shift has precipitated, in large part, in a restructuring of the Croatian shipbuilding industry. Amid a shift in global ship production to East Asia and a resulting decline in profitability, Croatia started to lose its leading competitive position. To try and win tenders, Croatian shipyards were forced to offer lower competitive prices while operational costs and efficiency remained largely the same. Several plans were laid out for the restructuring of Croatia’s large shipyards, with options 3The term 'DWT' refers to the weight-carrying capacity of a ship. 6 considered including the separation of ancillary production, privatization, or closure. However, these restructurings failed to solve the complex problems in the industry. In 2000, the government started subsidizing the industry and doling out grants to large shipyards, usually for technology updates. As part of the EU accession process, Croatia was committed to carrying out the restructuring process of the state- owned shipyards. The privatization process was a necessary step that would enable these companies to compete on the international market in line with the existing EU regulations and legislation. Additionally, the restructuring process was supposed to resolve crucial issues such as low productivity, low financial potential, technological backwardness, and overall operational inefficiencies. Large shipyards that have been subject to restructuring and privatization are Brodosplit, 3. Maj, Kraljevica, Brodotrogir, and Uljanik. In the document ‘Retrospective of the Rehabilitation and Restructuring Process of the Shipbuilding Industry in the Republic of Croatia’, the Ministry of Economy, Entrepreneurship, and Crafts (MINGPO) states that: “After the restructuring process, the Government will continue to support shipbuilding on the basis of aid rules for shipbuilding related to innovation, use of new technologies, and the like, for which the shipyards will apply individually” (Restructuring of Croatian Shipbuilding, n.d.). Notwithstanding recent and ongoing restructuring attempts, shipbuilding remains an important industry in Croatia. The Croatian Shipbuilding Corporation (CSC) estimates that the sector accounts for up to 1.8 percent of gross domestic product (GDP) and as much as 15 percent of Croatian exports (CSC, 2017). Furthermore, it is estimated that the multiplicative effect of the shipbuilding industry on the rest of the Croatian economy is around 2.8. This means that the value of HRK 1 million generated in shipyards results in total production in the Croatian economy of HRK 2.8 million (Karačić, 2013). 2.1.2. Smart Specialization Strategy and the STPA EFTS is one of three STPAs related to transport; the other two are Intelligent Transport Systems and Logistics and Added Value Manufacturing of Road and Rail Vehicles Parts and Systems. While the three STPAs are closely related, their existence underscores the perceived significance of this topic: “Transport and mobility are important areas for Croatia that can make substantial contributions to meet global challenges in relation to smart, green and integrated transport” (Government of Croatia, 2016). The S3 divides areas of activity among the three STPAs as follows: the Added Value Manufacturing of Road and Rail Vehicles Parts and Systems STPA covers the manufacture of automotive and rail components upstream of OEMs, the Intelligent Transport Systems and Logistics STPA covers intelligent transport systems (ITS), and the EFTS STPA covers environment-friendly approaches to the automotive and maritime sectors. 7 Figure 2: Transport and Mobility Thematic Priority Area (TPA) in the S3 Source: S3. The S3 defines two pillars within the EFTS STPA: (a) specialized vehicles such has EVs (even if they are otherwise part of the regular automotive value chain) and electric bikes and (b) maritime vessels. Within the STPA, the S3 also lays out a range of indicative key enabling technologies (KETs) that can be leveraged to support private sector growth and that are meant to serve as the main drivers of growth and development of the automotive and shipbuilding industries and their activities. Box 2: Indicative RDI Topics under the EFTS STPA (with Cross-Cutting Themes KETs and ICT) • Green vessels and greener combustion-based ship propulsion • Advanced maritime structures and lightweight materials • Robotic automation and drive technology • Electric propulsion, auxiliary power supplies technologies related to electric mobility • Safer waterborne transport and maritime operations (reduction of marine accidents consequences) • Innovative value added vehicles, vessels, and floating structures • Reduction of environmental impact from large merchant ships • Integrated power and heat systems • Equipment, systems, applications, and solutions for planning, support, and monitoring of transport, including modal transport and tour-retour operation mode, short sea shipping transportation of passengers and cargo. Associated indicative RDI topics under cross-cutting themes KETs and ICT are as follows: • KETs for more sustainable and green vehicles and greener combustion-based vehicle propulsion • Optimization of transport infrastructure including terminals • The port of the future • Equipment, systems, solutions, and applications for planning, organization, and monitoring of multimodal transport, resulting in the reduction of emissions, environmental pollution, and congestion and increase in the efficiency and speed of arrival from one location to another 8 • Equipment, systems, applications, and solutions used for modernization and establishment of smart ports and terminals equipped with renewable energy systems, smart lighting, and smart grids • Development of mathematical models for the analysis and design of vessels adapted for rendering on advanced computing resources (HPC, HTC) • Development system for design, production, and maintenance (CAE/CAD/CAM/PDM) vessels using virtual and/or augmented reality • Navigation, guidance, and control of vessels • Autonomous unmanned vessel (underwater and surface) • Solutions for the simulation of multimodal transport systems/models • Fleet management • Computer vision and machine learning with application in EFTS. Source: Smart Specialization Strategy 2016–2020 (Republic of Croatia 2016). These topics will be assessed in more detail in Deliverable 11 (‘Report on Strategic Segmentation’). In the meantime, the following chapters of this report take stock of the current situation of the Croatian EFTS STPA and map the set of relevant actors, agents, and organizations that represent the ‘cluster’ associated with this sector. 9 3. National Supply Profile The EFTS STPA consists of close to 240 firms, of which the vast majority are in the maritime industry. A total of 233 companies are involved in the manufacture of ships and boats, 2 companies produce EVs, and 3 produce electric bikes. This rather unusual configuration is due to the division of topics in the S3, in which upstream suppliers of automotive parts are treated separately from downstream OEMs and ITS and placed in different STPAs.4 (A strategic segmentation analysis of upstream component manufacturers was carried out in the Added Value Manufacturing of Road and Rail Vehicles Parts and Systems STPA.) As stated in the S3, the automotive industry in the EFTS STPA is represented only by “specialized vehicle producers (e.g., Rimac Automobili Ltd., Greyp Bikes ltd., DOK-ING Automotiv),5 especially ones dealing with electric propulsion and mobility” (Government of Croatia, 2016). 3.1. Production 3.1.1. EVs and Electric Bikes Croatia has only two companies—Rimac Automobili and DOK-ING Automotiv—that are involved (and then somewhat on the margins) in the production of EVs. Neither has concrete plans for serial production; Rimac Automobili has produced about half a dozen specially customized EVs on a one-off basis, while DOK-ING Automotiv has only produced an EV prototype. Rimac Automobili was founded in 2009 and its core business is production technology solutions and components for EVs, rather than EVs themselves. Rimac Automobili also makes electric bikes, while DOK-ING Automotiv manufactures electric scooters. More broadly, Croatia’s automotive industry includes product manufacturers that have been recovering from the setback of the global financial crisis. The component that accounts for most of Croatian parts production is car seats. A related product, automotive leather, is also a significant export for Croatia, but this sector has recently expanded less quickly than it had during the precrisis period. Engine parts have been the fastest growing major part for Croatian manufacturers, though average growth is still about 10 percent less than that of the precrisis period. Finally, body and aluminum parts experienced zero growth or contraction at various points in the past decade (Adamali & Jajčević). 3.1.2. Maritime Industry The Croatian shipbuilding and boatbuilding industry has a long history and is export oriented. The Croatian maritime industry consists of 233 companies related to the manufacture of both boats and ships and employed just under 6,700 people in 2016.6 The corresponding codes for these activities under the 4 The initial profile of the national industry was based on a list of firms provided by HGK that was updated during field research and compared against an intelligence database. This list was streamlined through research and interviews. An analysis was then conducted using a firm portfolio. 5 It is important to note that DOK-ING Automotiv is part of a much larger group of companies, DOK-ING, which specializes in the manufacture of firefighting and demining vehicles. 6 Intelligence database provided by a local Croatian firm, Bisnode (http://www.bisnode.hr/proizvod/portfolio-intelligence/). The Bisnode database offers financial data on Croatian companies collected from mandatory yearly regulatory filings of Croatian made by companies to FINA (the Croatian Financial Agency and provider of payment and financial intermediary services). The analysis excludes companies listed on the Bisnode database as being insolvent, bankrupt, or dissolved. 10 Statistical Classification of Economic Activities in the European Community (Nomenclature des Activités Économiques dans la Communauté Européenne, NACE) system. Figure 3: Croatian Orderbook, 2015 Table 2: European Orderbook, 2015 No. Country DWT % 1 Romania 3,122,635 59.52 2 Spain 647,500 12.34 3 Croatia 579,510 11.05 4 Turkey 255,546 4.87 5 Russia 218180 4.16 6 Netherlands 177,950 3.39 7 Germany 95,480 1.82 8 Italy 49,600 0.95 9 Poland 33,685 0.64 10 Serbia 30,650 0.58 11 Ukraine 28,955 0.55 12 Czech Republic 4,550 0.09 13 Greece 1,750 0.03 Rest of Europe — 0.00 TOTAL 5,245,991 100.00 Source: CSC. Croatian production of seafaring vessels is markedly down from peak levels in the early 2000s. Notwithstanding that shipbuilding is a highly cyclical business with long lead times, Croatian production has fallen dramatically since peaking in terms of both DWT and compensated gross tonnage (CGT) around 2004.7 As seen in Figure 4, the DWT and CWT of ships produced in Croatia essentially collapsed between 2004 and 2012, although there has been significant variation in the overall number of ‘floating objects’ produced. Figure 4: Evolution of Ship Production in Croatia 1988–2015 Source: CSC. 7‘DWT’ refers to the weight capacity of a ship while ‘CGT’ is an indication of the amount of work that is needed to construct a ship. These two values are often combined to provide a more accurate picture of the intensity of shipping orders. 11 During field research, several companies reported taking initiatives related to the production of environment-friendly vessels, and new financial instruments are making such initiatives more likely. To stimulate demand for environment-friendly vessels, the European Investment Bank (EIB) has launched a dedicated credit line called the Green Shipping Loan Programme (EIB). This financial instrument is aimed at supporting investments in sustainable shipping (for example, alternative fuels such as liquefied natural gas [LNG], hull treatment, ballast water treatment systems, and so on). Relevant institutions in Croatia have set up a working group that would decide on activities and further steps. It is expected that this initiative will spur additional demand for environment-friendly vessels. • iCat. Its first project was a technologically advanced (and eponymous) catamaran, ‘iCat’, which was created as a joint project between the company, the University of Zagreb, and the Končar Institute. Designed as an ultralight catamaran with capacity for up to 80 people, iCat does not emit harmful gases owing to advanced technology in hull construction and electric drive. iCat is used for passenger transport, and unusually low ship gassing allows the catamaran to sail in deeper waters than would normally be feasible. The vessel is designed to achieve significant savings in operating costs. The iCat catamaran could be used for several purposes—short-distance ‘hop-on’ lines used primarily for passenger transport around the islands, charter transport, or special experience tours. Another iCat project, ‘Babycat’, is an electric, zero-emissions catamaran with an integrated solar roof intended mainly for use in protected natural areas. The company was granted HRK 1.4 million in the latest R&D tender8 for prototyping an electric ship with solar roof and 10 hours of driving autonomy. • Brodosplit. One of Croatia’s large shipyards, it is changing its business model from the traditional production of large ships to that of cruisers, yachts, schooners, and sailing boats. The company has accumulated technical skills and knowledge to manufacture almost any kind of vessel but, in terms profitability and business sustainability, has identified the abovementioned products as the most attractive. The company has invested in various R&D projects mainly focused on new composite materials and environment-friendly solutions. 3.2. Exports The Croatian maritime industry is predominantly export oriented; as stated earlier, 63 percent of the industry’s turnover is generated by exports. While year-on-year trends do not give a full picture of the health of the industry due to the cyclical nature of the boatbuilding and shipbuilding sectors, it is notable that the 2016 figure for Croatian maritime exports (US$154 million) represented a more than 40 percent decline from 2015 and was also significantly down from the preceding years. Table 3: Percentage of Production Exported by Selected Croatian Shipyards Company Name Export (%) 3. Maj Brodogradilište d.d. 55 Uljanik Brodogradilište d. d. 76 Brodogradilište Viktor Lenac d.d. 96 Brodosplit d.d. 42 Brodosplit-holding d.o.o. 73 8"Povećanje razvoja novih proizvoda i usluga koji proizlaze iz aktivnosti istraživanja i razvoja“, Referentna oznaka Poziva: KK.01.2.1.01 12 Radež d.d. 76 Tehnomont - brodogradilište pula d. o. o. 83 Brodosplit-brodogradilište specijalnih objekata d.o.o. 78 Brodogradilište Punat d.o.o. 38 Source: Financial Agency (FINA). By value, the majority of Croatian exports are made up of large ships, including passenger and cargo ships. The share of large ships (including cruise ships, container ships, barges, and ferries) among Croatia’s export portfolio is 72 percent. Another 22 percent is made up of pleasure and sporting vessels, including yachts. The smallest export segment for Croatia consists of fishing boats and factory ships; the share of such vessels among Croatia’s maritime exports has fallen from 16 percent in 2013 to only 6 percent in 2016. Figure 5: Total Exports of Maritime Vessels, 2013– Figure 6: Distribution of Export by Product Type, 2016 (US$, thousands) 2016 Source: https://wits.worldbank.org/ Source: https://wits.worldbank.org/ Export patterns in the four-year period between 2013 and 2016 are characterized by significant fluctuations. Excessive fluctuations can cause significant operating issues for companies. The year-to-year variations for Croatia’s main three categories of export vessels are described below. • Cruise ships, excursion boats, ferry boats, cargo ships, and barges (HS 8901). After a period of relatively constrained fluctuation, exports in this category declined sharply to US$110 million in 2016. The largest single export destination is the Marshall Islands, which was the destination of 40 percent of exports in this sector. However, this figure is somewhat misleading since the Marshall Islands, along with Liberia and Panama, maintain one of the largest open registries for merchant shipping vessels flying flags of convenience. Other export destinations are the Netherlands, Colombia, and Sweden.9 • Yachts and vessels for pleasure or sports (HS 8903). Export volumes in the pleasure boat sector have also seen wide fluctuations. Exports surged to US$93 billion in 2015 but fell about 70 percent the next year. The top export destinations for this segment were the United States, the Cayman Islands, and the Marshall Islands.10 • Fishing vessels and factory ships (HS 8902). In comparison with the fluctuations in the other two sectors, this export category can be characterized by constant and rather drastic shrinkage between 9 https://wits.worldbank.org 10 https://wits.worldbank.org 13 2013 and 2016. Exports fell each year for four years straight, shrinking dramatically from US$38 billion to only US$9 billion. Norway and Russia were the largest export destinations for this category of vessel.11 Figure 7: Export of Cruise Ships, Excursion Boats, Ferryboats, Cargo Ships, and Barges (US$, thousands) Source: https://wits.worldbank.org/ Data are not available for export analysis of EV bikes or electric bikes. On the basis of field interviews with firms, Croatian exports of EVs are negligible. 11 https://wits.worldbank.org 14 4. Industry Functioning The mapping and analysis of the EFTS STPA was conducted on the basis of (a) industry NACE codes for the maritime industry and (b) firm-level data for companies involved in the production of EVs and electric bikes. There are no NACE codes for the latter category of products. Figure 8: NACE Codes Relevant to the EFTS STPA (Maritime Sector) Code Code Name C 30.11 Building of ships and floating structures C 30.12 Building of pleasure and sporting boats Figure 9: EFTS STPA Companies Involved in the Manufacturing of ‘Special Purpose Vehicles’ Company Product Rimac Automobili EVs DOK-ING Automotiv EVs and scooters Greyp Electric bikes Torp Electric bikes Visiobike Electric bikes 4.1. Economic Geography 4.1.1. Number of Firms The overwhelming majority of the companies in the EFTS STPA are classified as small companies. Totally 93 percent of the 167 companies involved in the production of ‘ships and floating structures’ are classified as small or micro enterprises—meaning that they have fewer than 50 employees.12 The shipbuilding sector in Croatia essentially consists of a handful of large or medium shipyards (for example, Brodosplit, Uljanik, 3. Maj, Brodotrogir, and Viktor Lenac) supported by more than 200 components and auxiliary service suppliers. The dominance of small and micro enterprises is even more pronounced among the 66 companies involved in the value chains associated with the production of ‘pleasure and sporting boats’. In this area, all of the companies are identified as ‘small’ or ‘micro’. In the ‘specialized vehicle’ category, four of the five firms (DOK-ING Automotive, Torp, Greyp, and Visiobike) are classified as small, with Rimac Automobili being the lone exception. 12 Article 5 of the Accounting Law defines micro, small, medium, and large companies in Croatia according to three factors: total assets, total revenue, and average number of employees during the fiscal year. To be classified as 'micro', 'small', 'medium', or 'large', an enterprise must not exceed defined limits in two of the three areas. For each category, those limits are as follows: (a) 'micro' companies have assets not exceeding HRK 2.6 million, revenues not exceeding HRK 5.2 million, and 10 employees or fewer; (b) 'small' companies have assets not exceeding HRK 30 million, revenues not exceeding HRK 60 million, and 50 employees or fewer; (c) 'medium' companies have assets not exceeding HRK 150 million, revenues not exceeding HRK 300 million, and 250 employees or fewer; and (d) 'large' companies exceed at least two of the three limits for medium or belong to certain categories of enterprises that include banks, insurance companies, leasing companies, and so on. 15 Figure 10: Number and Size of Firms in the EFTS STPA (Maritime Sector) Code C 30.11 C 30.12 Number of 167 66 companies Large 2% Large 0% Medium 0% Medium 4% Size of companies Small 93% Small 100% Source: Bisnode Portfolio Intelligence database. 4.1.2. Clustering of Firms Firms in the EFTS STPA follow an expected geographic pattern, given the areas of activity of most of the companies. Unsurprisingly, shipyards are concentrated along the coast, primarily in Istria, around Split and Šibenik, and on the island of Korčula. Input providers and companies involved in other activities such as design are located mainly in Zagreb and Rijeka. Producers of EVs and electric bikes are located in Zagreb with the exception of Torp, which is located in Rijeka. 16 Figure 11: Distribution of 15 Largest Shipbuilding Companies and Producers of EVs and Electric Bikes Electric bikes Electric vehicles Large shipyards Medium shipyards Source: Center for Industrial Development (Centar za industrijski razvoj, CIRAZ). 4.2. Profitability Analysis The construction of ships and ‘floating structures’—the dominant activity in the EFTS STPA—is a loss-making industry, though the sector’s performance has been showing some improvement. The Croatian maritime industry generates around EUR 500 million in revenues each year, and almost 99 percent of this derives from companies engaged in the building of ships and floating structures, as defined in the NACE classification system. Pleasure and sporting boats thus account for a miniscule portion (1 percent) of total shipbuilding turnover. Between 2014 and 2016, the ship and floating structures sector continued to grow at a slightly faster clip in terms of both revenues (with a compound annual growth rate [CAGR] of 3.6 percent for ships versus 2.6 percent for pleasure and sporting boats) and employment (5.1 percent versus 2.0 percent), while companies involved in the building of pleasure and sporting boats saw their net profits increase at a faster rate (38.2 percent versus 34.1 percent). The net profit trends, while positive, belie an important fact; net profits of companies in the pleasure and sporting boat category almost tripled between 2014 and 2016, while firms involved in the building of ships and floating structures have been paring down years of accumulated net losses. Table 4: Building of Ships and Floating Structures: Key Financials 2014–2016 (EUR) 2014 2015 2016 CAGR (%) Assets 723,424,851 718,307,313 759,899,425 1.65 Equity 224,434,210 211,581,290 198,269,506 −4.05 Financial liabilities 161,198,316 155,596,252 148,320,507 −2.74 Revenues 438,226,762 486,788,495 487,502,717 3.62 Net profit −74,112,935 −29,399,286 −21,257,492 34.05 Employees 5,545 5,717 6,437 5.10 Source: Bisnode Portfolio Intelligence database. 17 Table 5: Building of Pleasure and Sporting Boats; Key Financials 2014–2016 (EUR) 2014 2015 2016 CAGR (%) Assets 13,830,594 13,984,471 13,928,481 0.24 Equity 2,511,061 2,881,082 2,288,077 −3.05 Financial liabilities 5,330,757 5,342,979 5,030,678 −1.91 Revenues 12,070,825 13,038,721 13,024,553 2.57 Net profit 88,663 258,719 233,798 38.15 Employees 243 243 258 2.02 Source: Bisnode Portfolio Intelligence database. Production of EVs and electric bikes is in its pioneering phase and quantities sold are still at very low levels. This is particularly the case for EVs; Rimac Automobili has sold no more than five customized ‘hyper cars’. All key financial indicators for the five ‘specialized vehicle’ companies in the EFTS STPA show strong positive trends; revenues in particular have increased by 70 percent over a three-year period. However, profitability has seen a decline, which is not entirely surprising for innovative companies in their early stage of business cycles. Similarly, electric bike sales of the three Croatian companies in the sector have also shown strong growth, with revenues increasing more than 172 times from 2014 to 2016. Table 6: EVs: Key Financials 2014–2016 (EUR) 2014 2015 2016 CAGR (%) Assets 10,564,929 11,362,406 16,552,345 16.14 Equity 7,140,442 7,418,893 7,416,152 1.27 Financial liabilities 727,234 1,038,540 3,449,198 68.01 Revenues 1,385,714 4,326,797 6,884,568 70.63 Net profit 79,672 307,959 −28,487 −35.90 Employees 33 81 116 52.05 Source: Bisnode Portfolio Intelligence database. Table 7: Electric Bikes: Key Financials 2014–2016 (EUR) 2014 2015 2016 CAGR (%) Assets 63,382 993,563 1,394,125 180.19 Equity −3,890 −49,849 −187,290 −72.51 Financial liabilities 64,557 61,807 376,446 79.99 Revenues 3,447 178,620 595,479 456.94 Net profit −5,557 −48,858 −139,591 −65.85 Employees 0 5 19 n.a. Source: Bisnode Portfolio Intelligence database. 4.2.1. Assets, Debt, and Revenue 4.3.1.1. Revenue Revenue in the maritime industry has been relatively stable, while that of the few firms producing specialized environment-friendly vehicles has skyrocketed. Total revenue in the maritime industry reached EUR 500 million in 2016 and showed a positive growth trend in 2014–2016 with a CAGR of 3.59 18 percent. Firms producing ships and floating structures account for close to 97 percent of total revenue. Among the small sample of firms that make up the ‘specialized vehicles’ pillar of the EFTS STPA, total revenue was EUR 7.5 million and increased by a factor of five over the same period, while the revenue of firms producing electric bikes grew at a CAGR of 459 percent (albeit from a very low base). It is important once again to note that the core business of Rimac Automobili is technology solutions, not the production of EVs. Figure 12: Maritime Industry Total Revenues 2014– Figure 13: ‘Specialized Vehicles’ Revenues 2014– 2016 (EUR, millions) 2016 (EUR, millions) Source: Bisnode Portfolio Intelligence database. Source: Bisnode Portfolio Intelligence database. 4.3.1.2. Assets Total assets in the maritime industry recorded a slight growth in 2014–2016, with a CAGR of 1.63 percent. This growth was driven mostly by an increase in the assets of firms in the ships and floating structures sector, while assets in the pleasure and sporting boat industry stayed relatively constant. Close to 98 percent of total assets belonged to firms in the ships and floating structures sector. Among the handful of companies in the ‘specialized vehicles’ industry, assets grew by almost 80 percent. Figure 14: Maritime Industry Assets 2014–2016 Figure 15: ‘Specialized Vehicles’ Assets 2014–2016 (EUR, millions) (EUR, millions) Source: Bisnode Portfolio Intelligence database. 4.3.1.3. Debt The maritime and ‘specialized vehicles’ industries within the EFTS STPA displayed contrasting trends on debt. Total debt in the maritime industry fell over 2014–2016, representing a CAGR of −2.71 percent. In contrast, the five companies producing ‘specialized vehicles’ increased their financial leverage, 19 and their total debt increased almost five times over the same interval. Companies manufacturing electric bikes and scooters accumulated debt at a slightly faster rate. Figure 16: Maritime Industry Debt 2014–2016 Figure 17: ‘Specialized Vehicles’ Debt 2014–2016 (EUR, millions) (EUR, millions) Source: Bisnode Portfolio Intelligence database. Source: Bisnode Portfolio Intelligence database. 4.2.2. Employees The Croatian shipbuilding industry employs close to 7,000 people, most (96 percent) of whom work in the ships and floating structures segment. Employment in the industry has edged upward, with a CAGR of 4.97 percent reported in 2014–2016. There were 116 employees in the specialized vehicles in 2016—four times more than in 2012. Figure 18: Maritime Industry Employees 2014–2016 Figure 19: ‘Specialized Vehicles’ Employees 2014– 2016 Source: Bisnode Portfolio Intelligence database. Source: Bisnode Portfolio Intelligence database. 4.2.3. Cost Structure and Margins Profitability has been one of the main challenges in the Croatian maritime industry. Even in the relatively healthy pleasure and sporting boats sector, net profits rose dramatically to 2015 but have since eased off slightly, falling in 2016 to −1.8 percent (see Figure 20). Large shipyards are driving the negative net profits of the ships and floating structures sector. This sector’s profit margins were −16.91 percent in 2014 and a still negative −4.36 percent in 2016, although the numbers are trending in a positive direction. Long-term restructuring of the shipbuilding industry, together with privatization, is aimed at turning around the sector and improving its overall operational efficiency. 20 Figure 20: Maritime Industry Profitability 2014– Figure 21:Automotive Industry Profitability 2014– 2016 2016 1.98% 0.73% 5.75% 7.12% 2014 2015 2016 2014 2015 -0.41% 2016 -1.80% -27.35% -23.44% -4.36% -6.04% -16.91% Building of ships and floating structures (C 30.11) -161.22% Building of pleasure and sporting boats (C 30.12) Electric vehicles Electric bikes Source: Bisnode Portfolio Intelligence database. Source: Bisnode Portfolio Intelligence database. Traditionally, the largest Croatian shipyards have been 3. Maj, Brodosplit, Uljanik, Brodotrogir, and Viktor Lenac. Their 2016 revenues together with profit margins are shown in table 8. Three out of five largest shipyards have managed to operate profitably. Table 8: Top Five Shipyards by Total Revenue, 2016 No Company Revenue in HRK, 2016 Profit Margin (%) 1 3. Maj brodogradilište 1,052,120,447 3 2 Brodosplit 877,469,307 6 3 Uljanik 432,599,727 −56 4 Hrvatska brodogradnja Trogir 439,286,930 −2 5 Brodogradilište Viktor Lenac 305,560,985 1 Source: FINA. Although large shipyards have struggled with profitability, a number of medium and small companies are doing very well and even attained margins of up to 24 percent. Higher profitability results mainly from a lower level of complexity of their business. These companies are mainly suppliers of specific products to large shipyards. 21 Table 9: Most Profitable Croatian Shipyards, 2016 No Company Export as % of revenue 1 Brodoremont Punat d.o.o. 24 2 Brodoizolater d.o.o. 16 3 Brodska montaža d.o.o. 14 4 Brodogradilište punat d.o.o. 14 5 Navalis, d.o.o. 14 Source: FINA. Some maritime companies will likely continue to face challenges with the loss of government subsidies in 2018. In the past, Croatian shipbuilders received significant public subsidies, but these are expected to end in 2018. The profitability of vehicle producers has fluctuated but been mostly positive. The small number of firms in this area of the EFTS STPA makes it impossible to draw definitive conclusions about the wider sector in which they are active. Nevertheless, it is possible to note that the profitability of the two companies engaged at some level in EV production have seen profitability decline from 5.75 percent in 2014 to −0.41 percent in 2016. Electric bike and scooter manufacturers have had negative profit margins, but their numbers have been trending upward. The latter firms are mostly start-ups and the sector is a new one in Croatia. 4.3. Productivity and Innovation 4.3.1. Productivity Productivity is about 50 percent higher among companies involved in ships and floating structures than among those making pleasure and sporting boats, but overall productivity in Croatia still trails behind global peers. Productivity per employee in the EU is at a bit over EUR 150,000 while in Korea it reaches EUR 220,000—double or triple the Croatian figures of around EUR 75,000. Many Croatian shipbuilding companies are former state-owned enterprises (SOEs) that may have inherited shortfalls in operational efficiency as well as a high level of labor intensity. Meanwhile, among ‘specialized vehicles’, companies involved in the manufacture of EVs enjoy higher productivity than those making electric bikes. Overall productivity of specialized vehicle firms almost doubled in 2014–2016. 22 Figure 22: Maritime Industry Productivity 2014– Figure 23: ‘Specialized Vehicles’ Productivity 2016 2014–2016 Source: Bisnode Portfolio Intelligence database. Source: Bisnode Portfolio Intelligence database. 4.3.2. Innovation The Transport TPA is one of the most prominent research priorities within the Seventh Framework Program (FP7) of the European Commission.13 Croatian applicants have been granted EUR 6.47 million for project implementation, which is 7.23 percent of the total FP7 allocation in Croatia. According to EC data, out of the 608 projects in which Croatian researchers and entrepreneurs participate as partners, 62 projects fall within the Transport TPA. Most of these are collaborative R&D projects with several specific activities. The EFTS STPA is represented by a relatively small number of applicants, mostly large companies (Uljanik Shipyard participates in 7 FP7 projects) and scientific organizations (the University of Zagreb participates in 11 FP7 projects). There is also a significant contribution of R&D-based small and medium enterprises such as Alveus d.o.o. and Rimac Automobili d.o.o. Until now, within the framework of the Horizon 2020 program, Croatian institutions participated as partners in three projects in this field. FP7 was the EU’s research and innovation funding vehicle from 2007 to 2013 and was the successor to the current 13 Horizon 2020 program. Many of the projects that received funding from FP7 are still under way. 23 5. Cluster Figures: Market-Based Actors When analyzing the cluster, it is important to consider all agents and actors that are active in the industry, including both market actors (firms) and supporting bodies and organizations such as universities and government agencies. These market-based actors are depicted in typified form on the left-hand columns of Figure 24 and Figure 25 and are described in more detail below; support bodies are cross-cutting and represented on the right. This chapter summarizes both the set of ‘core’ firms that are the focus of the analysis, and a number of other firms and bodies that might be necessary to ultimately help move the sector into higher-value parts of the value chain or into more attractive strategic segments altogether. Figure 24: Cluster Mapping: Automotive Sector Source: CIRAZ and World Bank. 24 Figure 25: Cluster Mapping: Maritime Sector 5.1. Core Firms 5.1.1. Notable Firms 5.1.1.1. Maritime Firms Many of the largest maritime transport companies are successors of former large SOEs whose production mainly consisted of large passenger and cargo ships. These include large shipyards such as Uljanik d.d., Brodosplit d.d., Viktor Lenac and Brodotrogir, which have all been privatized during the restructuring process. Table 10: Maritime Firms • Founded in 1856 • Member of the DIV group, a leading Croatian metal processing industry group of companies • Design and construction of oil transport ships, bulk cargo ships, container ships, passenger ships, • Production ranges from commercial ships to and so on luxury yachts and patrol ships • Absorbed the 3. Maj shipyard in Rijeka (the • Customers from Argentina, Brazil, Venezuela, second largest shipyard in the northern Adriatic) England, Finland, Greece, Norway, Sweden, in 2013 Poland, German, Switzerland, Russia, India, Liberia, Nigeria, Pakistan, Mexico, and the • Customers from Croatia, Luxembourg, Cyprus, United States Colombia, Marshall Islands, and Russia 25 • Founded in 1896 • Founded in 13th century • Specializes in complex ship conversion projects • Long tradition of ship building, repair, and and gas platforms conversion • Customers from Croatia, Italy, the United • Customers from France, Singapore, and Cayman Kingdom, the United States, Norway, and Israel Islands Source: Company websites. 5.1.1.2. Specialized Vehicle Firms • Founded in 2009 • DOK-ING Automotiv, owned by DOK-ING • Production of EVs and EV components: drivetrain • Began an EV development project in 2009 systems, battery modules, battery management • Project is in prototype stage systems, composite (carbon) parts, chassis, metal • Manufacturing of electric bikes and scooters structures, electronics systems, high-voltage systems, infotainment systems, software controls, and cooling systems. • Part of the Rimac group • Manufacturing of electric bikes (combination of motorcycle and bicycle) • Founded in 2016 • Manufacturing of electric mountain bikes • Founded in 2015 • Manufacturing of electric bikes • Developed advanced battery technology Source: Company websites 26 5.2. Other Agents 5.2.1. Input Providers The shipbuilding industry is connected to various providers of different equipment. Some of the main input providers are listed in Table 11. Table 11: Input Providers • Part of the Končar Group • Production of ship generators and motors • Established in 1946 • Part of the Končar Group • Design, construction, assembly, testing, and servicing of low- and medium-voltage appliances and equipment for the shipbuilding industry • Design and manufacture of new marine and • Founded in 1989 industrial equipment • Electric propulsion systems for zero-emission boats, serial hybrids, and parallel hybrids • Consulting services for the shipbuilding industry • Experience in passenger ships, fishing boats, • Founded in 1954 yachts, commercial boats • Equipment manufacturer: cranes, ladders and gangways, towing equipment, hatches, mooring equipment, winches, doors, hatch covers, and so on • Founded in 2011 • Founded in 2004 • Building of electric ships • Design and document preparation for fishing • Concept design ships, passenger transfer boats, cruise ships, and work boats, as well as workshop documentation for all kinds and sizes of ships and offshore structures • Provides different kinds of calculations, as well as finite element analysis (FEA) and structure optimizations Source: Company websites. 5.2.2. Buyers The largest domestic buyers of the Croatian maritime industry are the fleet operators listed in Error! Reference source not found.. 27 • Jadrolinija is a fleet operator that runs passenger ships, catamarans, and ferryboats along the Croatian coastline. The company’s routes mainly link islands to the mainland, with a few additional lines between larger islands. Jadrolinija’s business is extr emely seasonal and dependent on tourist traffic. Jadrolinija operates more than a third of the ships managed by domestic operators. Another firm, Rapska plovidba, offers a similar service to that of Jadrolinija, but its routes are geographically limited to the island of Rab. • Brodospas is the second largest fleet operator in Croatia and is specialized in ships that supply oil platforms. The company maintains an international presence, particularly in the Middle East, the North Sea, and West Africa. • Atlantska plovidba, Tankerska plovidba, Uljanik plovidba, and Jadroplov are involved in maritime freight transport across the world. Their fleets consist mainly of bulk carriers and tankers. • Jadranski pomorski servis is a company specialized in hauling and rescue activities. Passenger transport is predominantly operated by the fully state-owned company Jadrolinija, which operates only in Croatia. Freight transport companies have been privatized and operate globally. The structure of local demand is presented in Figure 26. Table 12: Fleet Operators in Croatia Figure 26: Makeup of Croatian Fleet Company No. of Ships Jadrolinija 50 Brodospas 19 Atlantska plovidba 17 Tankerska plovidba 17 Jadranski pomorski servis 15 Uljanik plovidba 8 Jadroplov 6 Rapska plovidba 5 Brodosplit plovidba 1 Source: http://www.csamarenostrum.hr/. Source: http://www.csamarenostrum.hr/. 5.3. FDI in the STPA World Bank analysis showed that only a small portion of FDI in Croatia consists of investments in sectors based on knowledge and R&D. FDI in Croatia is primarily attracted by sectors such as trade and financial sectors that do not necessarily promote knowledge transfer (World Bank 2006). According to the Croatian National Bank data, there is no FDI in the maritime industry (Hrvatska narodna banka 2017). In the automotive segment of EVs, Rimac Automobili has received several rounds of foreign equity investments. In September 2017, the company received a EUR 30 million investment from a Chinese battery manufacturer to launch new products, finance expansion plans, and increase the production capacity 28 of both Rimac Automobili and its sister company Greyp. This is the largest FDI to come to a Croatian technology company.14 14 For the press release about this investment, see http://www.rimac-automobili.com/en/press/releases/rimac-closes- 30m-eur-investment-with-camel-group. 29 6. Cluster Agents: Cross-Cutting Support Bodies Beyond the set of firms that are the focus of this study, a number of other public or nonmarket agents that help in supporting the industry. This chapter describes those actors and their impact on the performance of the cluster. 6.1. Professional Associations and Cluster Organizations 6.1.1. Cluster Organizations There is one cluster and one professional association in the shipbuilding sector in Croatia. Mare Nostrum. It is an association of Croatian shipowners that since 1991 has actively advocated on policy issues for its members. Mare Nostrum is focused on the creation of more favorable business conditions and the promotion of the interests of Croatian shipping companies before the competent national authorities and, in cooperation with similar associations, before the EU bodies. Presently, Mare Nostrum counts 10 members consisting essentially of the leading Croatian shipping companies with a collective fleet of 138 vessels measuring a total of 1.74 million gross tons. It participates in the drafting of national maritime affairs legislation and in the implementation of international standards—in particular with regard to those of the International Maritime Organization and the International Labor Organization. Croatian Competitiveness Cluster for the Maritime Industry (MarC). This cluster formed under the aegis of the Agency for Investments and Competitiveness (Agencija za investicije i konkurentnost, AIK) is focused on the promotion of new shipbuilding innovations and on the implementation of real projects within specific areas of the sector. The cluster counts a number of private and public companies, faculties, and institutions as members. Table 13: Croatian Associations Overview MareNostrum 14 members Activities: • Joint promotion • Policy advocacy • Establishing cooperation with international organizations, such as the European Community Shipowners' Associations (ECSA) MarC 28 members Activities: • Knowledge exchange • Policy advocacy • Sector-specific analysis • Cooperation with like-minded international organizations and associations • Cooperation on EU-funded projects • Education 30 6.2. Academic, Vocational, and Research Bodies The knowledge and skills ecosystem surrounding the cluster is also important to consider. Typically, knowledge and skills can be found in the system of universities and faculties, in vocational schools, and in independent research bodies. The relevant actors and their contributions are detailed in this section. The academic sector is represented by the following: • Faculty of Electrical Engineering and Computing • Faculty of Mechanical Engineering and Naval Architecture • Faculty of Engineering in Rijeka • University North - Electrical Engineering and Mechanical Engineering • Faculty of Electrical Engineering, Computer Science, and Information Technology Osijek • Faculty of Mechanical Engineering in Slavonski Brod • Faculty of Electrical Engineering, Mechanical Engineering, and Naval Architecture in Split All academic institution and related technical universities cooperate with the business sector on joint projects. Some universities are working with businesses on the development of new solutions for the shipbuilding industry and on the implementation of those solutions. 6.3. Public Sector The public sector has several essential roles, namely, to monitor, to intervene, and to regulate. While monitoring functions for the economy are largely delegated to the Croatian Bureau of Statistics and several other ministerial departments, the more pertinent functions relate to the ministerial agencies that intervene and regulate the sector. An institutional mapping of the pertinent sectoral support and regulatory bodies and functions is provided in this section. 6.3.1. Sector Support, Policy, and Intervention Public sector institutional players and their responsibilities are as follows: • MINGPO—responsible for industrial, innovation, and smart specialization policies • Ministry of the Sea, Transport, and Infrastructure • Agency for Line and Maritime Transport • Hrvatska brodogradnja Jadranbrod (National Coordination Body for Shipbuilding) • AIK promotes Croatia as a desirable investment destination, attracting and implementing investment projects • Croatian Bank for Reconstruction and Development (HBOR) 31 • State intellectual property office - national administration body with responsibilities in the field of protection of intellectual property rights • Croatian Accreditation Agency (for compliance insurance) The shipbuilding industry works with relevant bodies in areas such as project financing and intellectual property rights. One significant role of Hrvatska brodogradnja Jadranbrod is to carry out obligations and commitments (already determined by the Croatian government) with regard to the coordination and monitoring of contracted shipbuilding programs. Private/public associations are as follows: • Croatian Chamber of Economy • Croatian Employers Association • Mare Nostrum • Croatian Exports • AIK Competitive Clusters • Brodarski Institut All private/public associations in Croatia serve an advocacy role. They are working on improving the business environment by advocating for improvement of legislation and mutual understanding of processes and challenges that companies are facing when operating within the Croatian market. 32 7. Assessment on Cluster Interactions 7.1. Relationship of Cluster Agents A total of 28 firms and other agents in the EFTS STPA were interviewed. There seems to be a rather low level of cooperation between different cluster agents, particularly in shipbuilding activities. 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