Do First Mover Advantages for Producers of Energy Efficient Appliances Exist? The Case of Refrigerators

Energy efficiency regulation is an important driver for innovations in environmental technologies. Improvements of energy efficiency do not only contribute to reach environmental policy targets, they can be furthermore economically profitable. Private households can reduce their costs in the long term by using efficient household appliances. According to the German Federal Environmental Ministry, the world market for energy efficient household appliances had 2007 a volume of 105 billion euro, with a German market share of 9 percent and expected growth rates of 3 percent until 2020.

But how can the specific competitive position on this market be assessed for German producers, and how strong is the competitiveness from firms coming from emerging economies? For answering these questions we analyze national lead market factors in the case of refrigerators. We develop indicators for the factors of countries which are seen as important in the literature for reaching a leading international position: Comparative advantages regarding prices and demand, country’s reputation for technological expertise and as a problem solver, export advantages and a competitive market structure. Also environmental regulations and supply side factors are considered as framework conditions.

As our results show, Germany has the most lead market potentials for energy-efficient refrigerators, followed by Korea und Italy. A producer on the German lead market is the firm BSH Bosch and Siemens Home Appliances GmbH. According to BSH first mover advantages for high-tech energy efficient appliances can be realized on the German market. This is backed by high energy efficiency standards in Europe which diffuse after some years to other countries.

Since the pay-off time for energy efficient household appliances is with 7 to 10 years quite long, also a cost strategy with low prices can be successful. Especially in the case when the price of electricity and the national income are low. Markets for such products are for example in Asia and Russia.

Producers use the existence of both strategy options to operate with different brands and product lines in different market niches at the same time. For firms in countries that do not have sufficient lead market potentials, innovations in energy efficiency must be targeted to fit the preferences of users in the lead market. The screening of the lead market can take on varying degrees of intensity. A good way for a company to establish ties with a lead market is via producers with long experience on the Lead Market. It can be realised through a simple sales cooperation with local producers or a merger with a local producer of the lead market. As an example, competitive pressure for firms on the lead market comes from appliances with low prices and high energy efficiency, especially from competitors in Turkey. The Turkish firm Arçelik A.Ş., originally known as a producer of low cost appliances, developed in the past innovative, eco-efficient products under the brand name BEKO. The refrigerators are produced in Turkey, without a strong domestic home market for energy efficient appliances. The strategy shows that an orientation at the lead market can be a promising innovation strategy for "second mover".

Cleff, Thomas and Klaus Rennings (2013), Do First Mover Advantages for Producers of Energy Efficient Appliances Exist? The Case of Refrigerators, ZEW Discussion Paper No. 13-054, Mannheim.