Introduction
Welcome to our weblog! This log is intented as a place were we can share our thougths with fellow master-students of the Eindhoven University of Technology in the Netherlands (see www.tue.nl) and other scientifically orientated people about the group assigment for the course ‘Technology Policy’ (0EE30) by Dr. B.M. Sadowski and Prof. mr. dr. J.M. Smits.

This log will be made by:
Brouwer, J. (Jeroen); j.brouwer@student.tue.nl
Sneijers, D.P.H. (Dennis); d.p.h.sneijers@student.tue.nl
Zegers, R.M.G. (Roel); r.m.g.zegers@student.tue.nl

Soon, more to come!

Dennis

The observed problem of the water management sector is the low application efficiency of the knowledge institutes. By the lack of international competition in the knowledge market, the sector is not responding enough on market demand, and not innovative to market needs. This is for a large extent initiated by the lack of international knowledge transfer in the executing sector. No knowledge transfer is obtained between the knowledge gaining sector in the Netherlands and the executing companies internationally.
In the further analysis, we have worked on answering the question “how we could stimulate the knowledge transfer by these institutes (internationally)”. The main solution is found in the reformation of the institution sector, into more market competition dictated. By liberalizing the large national knowledge institutes, one creates a demand dependent market for water management concerned knowledge. An additional advantage of this approach will be that the innovation effort will also be more demand dependent.
A possible risk can be determined in the negative effects of market competitions. By the increasing efficiency for being competitive to the international market for knowledge, one can often lose the focus on innovation activities; like we have seen in the executing sector, where the bidding and pricing processes of companies, led to minimal profit margins, without any prospect on innovative behaviour.
Disappointing was the search for foreign companies in the field of knowledge institutes in the sector of water management. Only in America we have been able to detect some engineering companies that are concerned with research and development in this knowledge area (U.S. Army Corps of Engineers, American Society of Civil Engineers). But as the names already reveal, most of them are related to the state similar to the Dutch companies mentioned before. As we determined the problem in the Netherlands, this same problem can be identified within the US. Where the knowledge sector does come up with knowledge and research data, but misses the demand and principal to execute this knowledge; with large consequences to New Orleans (Scientific American, January 22, 2006).

As in response on the happenings in New Orleans renewed the attention on the importance of good maintenance and water management knowledge (up to date and project based), the discussion on liberalisation can help in making the knowledge gaining sector more demand dependent and competitive (www.deltacompetition.nl).

Due to the historical, economical and geographical position of the Netherlands, national knowledge institutes are well developed for the supply of internal knowledge. Water boards, public and private research institutes, are working for principals like local and national governments, water construction companies and (inter-)national management agencies. In the last decennia, no large water construction projects have emerged due to the lack of urge for such projects. This resulted in a rather bureaucratic, inefficient and internalized knowledge creation sector.
After our (preliminary) analysis we focus now on the policy recommendations as an answer to our research question as stated in the beginning of this research:

“How should Dutch water management policy makers stimulate the exploitation of Dutch knowledge in the international water management sector?”

Our goal is to create more outward oriented knowledge institutions which are liable to (international) market competition, which can be achieved by means of incentives. This will brake down the inefficiency of most institutions, and will increase towards a more market-conform knowledge demand. Thereby profits need to be generated from the huge investments which took place in the past and potential future investments.

We will try to elaborate on the former by means of the following policy intervention key-issues:

- Generating an institute for the synchronisation of (international) demand and supply.
- Commercialise the applied research sector (management responsible for profitability)
- Keep basic research publicly owned (i.e. Universities).
- Offer funds for innovative behaviour (Innovation platform)
- Create linkages between firms (mainly the focus will be on forward-linkages). This could be achieved by selectively subsidies projects that concern cooperation between multiple firms or/and institutions or/and actors.

The (inter)national legislations are powerful policy measures, which are used for enforcing market competition. The Dutch government has to be cautious though not to stimulate only the national champions, but instead they have to focus on stimulating innovation in general. The governmental intervention possibilities are restricted by means of the European regulations concerning competition matters, which don’t allow governments to protect their national champions (anticompetitive agreement, art. 85 treaty of Rome EU) or abuse their dominant position (art. 86).

As could be seen from the Porter model is that the cultural differences between countries are very important for the development and implementation of new technologies. An important cultural issue in the Netherlands, which has its influence on the water sector, is the shift from the general perception of the population and politicians. The change of the perception we are pointing at here is the general perception towards large technological projects as being prestigious projects (identifying the greatness of a country) towards trying to disguise all the technological influences, like the betuwelijn and the HSL. Another important issue can be found in the difference between for example the Netherlands and the United States with respect to the different thresholds values for interpreting the risk analysis of water products. Both issues have a large influence on the development of the water management sector.

Cultural perceptions cannot be changed over day; therefore the following actions can be taken to influence the process:

- Lobbying with other governments is very important. An advice to the Dutch policy makers would be to extending and exploit political connections more.
- The relevant actors, which are governments and companies, should be acquainted with the possibilities and the advantages that they can get when adopting the technology.

The key problem of focus is the fact that however the Dutch water-industry has a leading position with respect to know-how in their sector there isn’t worldwide diffusion and implementation of this knowledge. The Netherlands has many state owned knowledge institutions which perform a lot of basic as well as applied research.

The indication of the time lag between the knowledge level of Dutch institutions and foreign industries is hard to do. Main incentives for Dutch innovation in this industry initiated from historical events and geographical – & economical situation. Therefore living with water is “embedded in our vessels” during the years one could argue.

Indicators for the time lag could therefore include:
-Historical water related events;
-Geographical and economic situation;
-R&D / innovative expenditures in relation to generated profits, patents, new products, new processes (output efficiency);
-Position in the water innovation-network (e.g. knowledge generator, provider or requestor) ;
-Patents generated and cited;
-Number of firms in perspective of country’s population;
-Consultancy activities.

Precisely defining the time-lag is impossible due to the absent of data on the most indicators On the other hand one can only answer this question in perspective of each national water industry. The first 2 indicators give a good indication of the urge to innovate in the industry; the rest gives an indication of the experience and progress that have been made.
We argue although there do exist some recent innovations once can general say that the time-lag varies between 20 – 40 years. Especially the urge to innovate and the countries attitude are an important determinant for the former.

The structure and conduct part before draw up the environment in which the individual companies have to perform. Performance is therefore the last level of industrial analysis of the water management market.

Profitability of the water management sector is not that impressive. From the annual reports of the largest companies in the national context, we found that profits vary between the 2 and 5 percent of the turn over are common. Because the heavy competition on the international market, the high overhead costs like ships, yards, offices over the world, international principals and employees; there is less space (financial and organizational) to dive in to research and development labs in order to come up with 20% useful innovative thinking. Companies in this field are applying a survival strategy, which pay them the ability to survive in the competition. To keep your employees busy, sometimes asks for creative project proposals, like taking deficit in a short term or work on non profit base.

Our history with water management oriented companies, agencies and institutes lead to a high number of people working in this area. For example the Dutch Water Boards do contain the third largest amount of governmental employees (The association of Water Boards). Besides the governmental employees, the several knowledge institutes and dredging companies do ad for a large extend in the amount of labour force in the water management sector.

As already notices within the conduct analysis, most part of the innovation in the water sector is conducted from the knowledge intensive institutes like RIVM, Rijkswaterstaat, the UNHCR-IHE and TNO. The latter are concerned with a broad scope of research and development. From explicit research for dike improvements after high waters in the rivers (1999, 2000, 2002) until a scenario analysis for see dunes after 20 years of increasing see level.
Innovation often takes place in order of the government or related institute. This finding is direct the largest problem of the knowledge institutes in the water management sector. Because the demand for knowledge is often not interpret directly from the sector (represented by the dredging companies itself), but mainly indirect via political processes of safety improvement or societal awareness. When market demand for knowledge, being general or applied, is used as enforcer for research and development efforts, there should be more market relevant innovations be announced.
The efficiency of the knowledge institutes could be improved by introducing (international) market mechanism, in order to match supply and demand for applied and general knowledge. In contrast to the large dredging companies in the Netherlands, they perform highly efficient because of the large and heavy competition in the international market of water sector related projects.

Second level of market evaluation is the conduct of the water industry. This industry is mainly steered by technology policy, and is affected by price policies, R&D expenditures, marketing and advertisements. These costs do ad to the environment in which the industrial firms have to perform.
By referring to national champions as Boskalis and Van Oort (former Ballast) we can speak of a very long tradition on water management in the sense of the execution of big dredging projects, coastal constructions and marine infrastructure. It is not hard to compare these dredging and coastal construction companies with civil construction companies as ABM Amstelland, IBC bouw, Ballast Nedam, Hurks etc. Parallel to these constructing companies, the dredging companies do have a tradition in bidding and pricing processes in order to gain orders. A secondary result of this way of pricing is the very low profit percentages that are common in these sectors. Low profits and low biddings ad to a culture of survival strategy, which not ad to a rich environment of high Research and Development expenditures within the companies. Innovation therefore is incremental, and mainly due to product (suppliers) improvements or process improvements gained by knowledge institutes as mentioned within the Structure.

For continuity of work, these large companies do have an international scope for projects and marketing activities. In order to gain large foreign contract for water-management related projects, our national champions have to perform international biddings to compete other large companies.

Industry conduct largely depends on the effort and investments in and by the knowledge institutes like RIVM, TNO, KIWA, Delft Hydraulics, UNESCO-IHE, ILRI and several Universities. Most of these firms and institutes are state owned or government acts at least their exclusive principal. For that reason, these knowledge institutes serve a social function in developing general knowledge for protecting the Netherlands from high water. Most of this knowledge is general and implicit. Attempts should be made in liberalize these knowledge institutes in order to make them more aware of the international market and demand for this valuable knowledge.

Porter’s five forces model is a framework to analyze the industry structure; which is in our case the water management industry. The framework (see figure 1) looks at the following five competitive forces: the market share distribution and its instability with respect to new entrants, the substitutability of the core product and the bargaining power of buyers and suppliers. The additional value of this framework, to comparative models, is that the forces are considered to be equally important.

Figure 1: Porter’s five forces framework

Source: M.E. Porter (2002), Competition and Antitrust: A Productivity-Based Approach

In the following text the most important characteristics of the five forces will be given. Here the Dutch water management sector will be taken as a starting point whereon the positive and negative forces will be described.

Bargaining power of suppliers:

+ The construction market is not very concentrated.
- The construction fraud in the Netherlands has highlighted the risks of pricing agreements between construction firms.

Threat of substitute products or services:

+/- There is a large amount of substitutable products available on the market; though also with a large range of effectiveness towards achieving the problem.
- Nations are not always as eager to spend large amount of money to get the best possible protection, that Dutch engineers can deliver, but often take risks (to a certain level), to save money.

Bargaining power of buyers:

+ The recent natural disasters increase the need for better protection against water flooding.
- The buyers of water technologies are often led by tradition then by the best possible solution.
- In the Netherlands there is a declining amount of new water projects.

Threat of new entrants:

+ Huge investments are needed to build-up capabilities to diverge to the existing knowledge level of the Netherlands.
- Increasing international water problems, by fluting and water scarcity, in other countries leads to more incentives for companies to enter the market.

Rivalry among existing competitors:

+ Non-governmental organizations in the Netherlands have a firm financial and institutional base.
+ The Dutch water management companies have a good international name.
+ There is strong cooperation between public and private companies.
+/- The sector is highly concentrated, which could lead to more capital intensive but less radical innovations.

References:

M.E. Porter, Competition and Antitrust: A Productivity-Based Approach (2002)

The first approach in the SCP model is structure. In this posting I will elaborate on that in perspective of our research.

The Dutch water sector doesn’t only consist of governmental institutions. Innovation in this industry comes from non-governmental organizations, knowledge institutions, public and private sector. Main players in the former area are:

Non-governmental organizations
Numerous of non-governmental organizations are also active in this industry. These include WWF-Netherlands, IUCN-NL, UN institutes.

Knowledge institutions
These consist of both governmental and private research / educational institutes. Main actors in this field are: RIZA, RIKZ, RIVO, IKC, Alterra, RIVM, TNO, KIWA, WL, Delft Hydraulics, IAC, UNESCO-IHE, ITC, ILRI and universities.

Public Sector
Dutch government is very active in the water-management industry. The main ministries that are key-players in this industry include: the Ministry of Transport, Public works and water management, the ministry of housing, spatial planning and the ministry of foreign affairs.

Private Sector
The main private companies existing in the Dutch water industry includes hydraulic engineering and constructing firms, drinking water supply (however not related to our specific research field), consulting firms and banks. Their expertise is somehow already being exported and examples of where one can find this expertise include: Mekong, the Yellow River and Aral Lake.

Concluding one can say that main drivers of innovation in this industry are knowledge institutions and the private / public sector.

Entry barriers, concentration and differentiation
In this industry one can speak that there exist high entry barriers due to the fact that this is a very knowledge intensive sector, dominated by few large (publicly owned) firms and therefore one need to make huge investments only to build up capabilities to diverge to the existing knowledge level. Due to the fact that this industry is dominated by some few large firms we are dealing with a highly concentrated industry.
From private sector perspective one can say that the few large companies dominating in this industry have differentiated during the years. For example van Oord (http://www.vanoord.com/) and Boskalis (http://www.boskalis.nl/) initiated their core business with dredging activities. However during the years they attracted other activities to their product portfolio including offshore installation activities, coastal construction, infrastructure marine, infrastructure land, maintenance and construction of harbors and waterways, land reclamation, coastal defense and river bank protection, offshore services and environmental activities. They used their knowledge from their core business to make profit out of other related sectors. Hereby they can make more efficient use out of general business related activities.

IN describing the structure conduct performance of the water management industry, we focus mainly on the information gaining institutions and executive firms like dredging companies in the Netherlands. These large (often multinational) firms have a in common that they are situated within the same industry of water management, but do have a different approach of costumers or projects.

The Structure Conduct Performance (SCP) framework was derived from the neo classical analysis of industries and markets. The structure of a market (i.e. the number, size, concentration and diversity of participants) influences the conduct of the marketing activities (i.e. the reliability or timeliness of activities, pricing behaviour, control or standardization of quality and Research and Development) which together determine the performance of the marketing system as a whole (i.e. technical and allocative efficiency, employment figures, price and margin stability and innovation).

Like the director of the Dutch Water Partnership, Jeroen van der Sommen, observed: ‘there is an inextricable connection between the Netherlands and water management’. Recently the innovation platform (innovatie platform) in the Netherland has made the water sector as one of the four core sectors in the Netherlands [Toekomstvisie Water, 2005].The Dutch possess knowledge and skill about water management which can be exploited all over the world. ‘In the years to come, the realization of excellent, sustainable and efficient water management will become one of the major international challenges’ [Nederland en water, 2002].

International agreements about the need of proper water management will increase the need for new technologies that can put these objectives into practice. Examples of such international agreements are the Convention of Bern of 1963 about the transboundary management of the Rhine and more recently the Water framework directive (WFD) in 2002. In the WFD the European countries have until 2015 to realize a good ecological and chemical status of all the waters in the European Union. The objectives have to be reached through an integrated water management at an international scale [Aubin & Varone, 2002].
The protection against the destructive forces of water is more or less a national matter. With recent calamities like the tsunami in South-Asia, the hurricane ‘Katrina’ in the USA and the cyclone ‘Larry’ in Australia, the international awareness of the threat originating from the seawater is rising.

Because of the reputation of the Netherlands internationally and the high level of expertise present there, they can play a huge role on the international water management as has been the conclusion of the Dutch scientific television program of the VPRO ‘Tegenlicht’ (for more details see the log from 26-03-2006). But the Netherlands do not dominate all of the international water markets. As in 2002 the Netherlands only had a 1-2% market share in the sectors: drinking-water, waste water, water control and irrigation. In the hydraulic engineering and the dredging sector the Dutch market share is significantly larger of approximately 35%. This means that there is still a huge potential in the first four sectors.

To conclude, the Netherlands do have a good reputation when it comes to water management. This just has not lead to a significant market share in all the relevant water sectors. While the skills of the water technologists are high and the demand seems to rise; proper intervention by the Dutch government might, be necessary, and lead to more economic growth.

1. Aubin D. & Varone F., European Water Policy; A path towards an integrated resource management, 29-03-2002
2. Nederland en water: brief NWP aan Staatssecretaris, 26 augustus 2002, http://www.nwp.nl/fulltext/fulltexthandler.cfm?fulltextevent=
fulltext&objecttypeID=13-1&ID=12204
3. Netherlands Water Partnership, Klankbordgroep keurt Startnotitie voor het opstellen van de Toekomstvisie Water goed, 30-03-2005
4. Nieuwsarchief Toekomstvisie Water, 11 april 2005, http://www.kennisalliantie.nl/index.php?id=356
5. VPRO – Tegenlicht: http://tegenlicht.vpro.nl, http://www.hollanddoc.nl, http://www.vpro.nl/programma/tegenlicht/afleveringen/27601353/