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New procurement
markets for the
Bavarian economy

Client

vbw – Bavarian Industry Association

Year

2023


Until a few years ago it was the efficiency of supply chains that was paramount. When it came to their procurement markets companies were primarily concerned with procuring the required intermediate products in a higher quality and as economically as possible. In comparison with previous years, disruptions to global supply chains and geopolitical upheavals have brought the resilience of supply chains into the spotlight. Companies are still often largely reliant on foreign preliminary services for their production processes, and in part are highly dependent on individual supply countries. Our study on behalf of the vbw – Bavarian Industry Association, provides domestic companies with a reliable information basis that can be used to identify potential new procurement markets – rendering their supply chains more resilient through diversification, without neglecting efficiency perspectives.

There are numerous, still under exploited procurement markets

Analysis of the global supply of primary goods shows that there are alternative supplier countries in almost all categories beyond the current German procurement markets.

On the one hand, these are emerging markets such as India, who have only recently established larger production capacities. In selected product groups, the South-East Asian markets of Indonesia, Malaysia, Singapore, Thailand, and Vietnam as well as Mexico also belong to a group of globally significant supplier countries of primary products. What often slows down trade with these countries are the tariff-based and non-tariff-based trade barriers, as in only a few cases are comprehensive free trade agreements in place.

On the other hand, there is a whole series of highly developed countries that could be further developed by German buyers. These include, in particular, the East Asian markets of Japan and South Korea as well as North American markets of the USA and Canada. An advantage of these potential supplier countries: with the exception of the USA, they are all countries that have modern, comprehensive free trade agreements in place.

What role does diversification play in making the import of intermediate inputs more resilient?

The import of intermediates, which enter the production processes of the manufacturing industry as intermediate goods, play a crucial role for the highly internationalised companies of Germany and Bavaria. Over half of the intermediate products imported to Germany come from EU Member States. But the singularly most important procurement market is China – around 11% of the German demand for intermediate goods originate from there. In fact, China is the most significant import source by a long way for the import of intermediates in some specific product groups such as DV devices, electronics, optics, or electrical equipment. Disruptions to international supply chains and increasing geopolitical tensions, more common in recent times, show the implicit risks of prioritising supply chain efficiency.

To ensure the reliability of procurement markets and supply chains companies have shifted their focus to the question of resilience. In this context, the diversification of international sources of supply is decisively important for rendering supply chains more resilient and reducing existing dependencies. Modern procurement strategies therefore aim to increase the resilience of supply chains through diversification without compromising aspects of efficiency (too much).

Our approach

The study focuses on new product groups that have a prominent significance for the Bavarian economy - e.g., components for machines or intermediates relevant for DV devices, electronics, or optics. On the basis of detailed foreign trade data analysis, each product group is quantified in terms of where the current procurement markets are for individual product categories and where the currently insufficiently exploited procurement markets are. In addition, a traffic light system enables a rating in terms of the geopolitical risk these procurement markets present and how good market access is for German companies.

Links and downloads

More about the study (vbw website, in German)

To the study (PDF in German)

Project team: Dr Michael Böhmer, Philipp Kreuzer, Johann Weiss, Eva Willer

Latest update: 02.11.2023

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