Challenges and Opportunities for Business

in the Emerging Biofuel Industry in the EUIndustrial Analysis and Four Cases from the EU Biofuel Industry.

Discussion Based on International Business Theories.

Master Thesis

Author:

Veselina Asparuhova,

Master of Science in International Business,

Exam nr. 287950

Supervisor:

Robson Silva Rocha,

Department of Business Administration – Management

1 March, 2013

Aarhus School of Business and Social Science,

Aarhus University

Acknowledgements

I would like to express my deep gratitude to my thesis advisor Robson Silva Rocha for his

time, continuous support and instructions. His guidance helped me to gather my ideas and

apply my knowledge in the present paper. This paper would not have been possible without

the support from my family and friends. Special thanks to Eli Tsvetanova for her patience

and motivation.

2

Abstract

The purpose of the present paper is to extend the understanding of the conditions and

motives for biofuel trade in the European Union market and provide explanation of the

internationalization processes occurring there. For this purpose, international trade theories

have been employed to provide understanding of the macro-environment in which biofuel

traders operate and explain the expected internationalization behaviour of the employed

companies in this research. Methods for data collection and analysis have been explained,

market analysis has been done, and four cases from the biofuel market have been presented.

The paper discusses hypothesis elaboration in regards to the employed theories and

provides conclusion on the topic and suggestions for further research. The study answers

how biofuel producers expand their operations abroad in the emerging biofuel industry in

the European Union where macro pressures prevail.

The number of total characters in the present paper is:

Key words: internationalization, bioethanol, biodiesel, European Union, strategy, Diester

Industrie International, Crop Energies, Abengoa Bioenergy, Biopetrol Industries AG.

3

Table of Contents:

Abstract..............................................................................................................................- 3 -

Abbreviations.....................................................................................................................- 6 -

1.Introduction.....................................................................................................................- 8 -

1.1.Problem Statement..................................................................................................- 9 -

1.2.Delimitations.........................................................................................................- 10 -

1.3. Sructure................................................................................................................- 10 -

2.Theoretical Framework.................................................................................................- 11 -

2.1.Globalization, Internationalization and the Multinational Enterprise...................- 11 -

2.2. The Macro-Environment......................................................................................- 12 -

Industry-Based Theory..........................................................................................- 12 -

Institutional-Based Theory....................................................................................- 13 -

PEST Analysis...........................................................................................- 14 -

Porter’s Five Forces Analysis....................................................................- 14 -

2.3.Internationalization of the Firm.............................................................................- 14 -

Institutional-Economic Perspective ......................................................................... 42

Learning Perspective ................................................................................................ 42

Born Global .............................................................................................................. 42

Strategic Competition Perspective ........................................................................... 42

Inter-Organizational Perspective .............................................................................. 42

Market Expansion Strategies ................................................................................... 42

3.Methodology ...................................................................................................................... 42

3.1. Ontological and Epistomological Assumptions ........................................................ 42

3.2. Systems Approach ..................................................................................................... 42

3.3. Research Design ........................................................................................................ 42

3.4. Data Collection ......................................................................................................... 42

3.5. Case Company Selection .......................................................................................... 42

3.6. Validation and Reliability ......................................................................................... 42

4. Industry Analysis .............................................................................................................. 42

4.1. Biofuel Consumption and Production in the EU ...................................................... 42

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4.1.1. Biofuel Consumption in the EU ........................................................................ 42

4.1.2. Biodiesel Production in the EU ........................................................................ 42

4.1.3. Bioethanol Production in the EU ...................................................................... 42

4.2 Pest Analysis ................................................................................................................... 42

4.2.1. Political-Legal Factors ...................................................................................... 42

4.2.2. Economic Factors .............................................................................................. 42

4.2.3. Socio-Cultural Environmental Factors .............................................................. 42

4.2.4. Technological Factors ....................................................................................... 42

4.3. Porter’s Five Forces Analysis ........................................................................................ 42

4.3.1. Threat of New Competition .............................................................................. 42

4.3.2. Threat of Substitute Products or Services ......................................................... 42

4.3.3. Bargaining Power of Customers ....................................................................... 42

4.3.4. Bargaining Power of Suppliers ......................................................................... 42

4.3.5. Rivalry ............................................................................................................... 42

5. Biofuel Producers in the EU ............................................................................................. 42

5.1. Diester Industrie and Diester Industrie International ................................................ 42

5.2. Biopetrol Industries ................................................................................................... 42

5.3. Abengoa Bioenergy ................................................................................................... 42

5.4. Crop Energies ............................................................................................................ 42

6. Discussion ......................................................................................................................... 42

Entry Modes and Business Network ................................................................................ 42

Certification ..................................................................................................................... 42

Controversial Political Situation, Competition and Supplier/Buyer Uncertainties .......... 42

Strategic Location ............................................................................................................ 42

Market Position ................................................................................................................ 42

7. Elaboration on Hypothesis ................................................................................................ 42

8. Conclusion ........................................................................................................................ 42

Appendix ............................................................................................................................... 42

Endnotes ................................................................................................................................ 42

Bibliography .......................................................................................................................... 42

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AbbreviationsADEME – Agency for the Environment and Energy Management

AFME – animal fat methyl esters

AGQM – Working Group for the Quality Management of Biodiesel

B5 – biodiesel in diesel up to 5%

B7 – biodiesel in diesel up to 7%

B99 – biodiesel in diesel up to 99%

BP – British Petroleum

CEN – European Committee for Standardization

CCP – Climate Change Package

DI – Diester Industrie

DII – Diester Industrie International

DPFF – Danone France Fresh Products

EBB – European Biodiesel Board

EC – European Committee

EU – European Union

FDI – Foreign Direct Investment

FFV – Flexible Fuel Vehicle

E5 – Ethanol in gasoline up to 5%

E10 – Ethanol in gasoline up to 10%

E85 – Ethanol in gasoline up to 85%

ePURE – the European trade association that promotes renewable ethanol

GHG – Greenhouse Emissions

I+DEA – Research and Development of Ethanol for Automotive Applications

ISE – Solar Energy Systems

ISO – International Organization for Standardization

JRC – Joint Research Center

MS – Member States of the European Union

MNC – Multi-national Corporation

PSA – Peugeot-Citroën

R&D – Research and Design

RED – Renewable Energy Directive

REDcert – German Biofuel Sustainability Regulation

SME – Small Multinational Enterprise

TC – Transaction Cost

WOME – waste oil methyl esters

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Figures Fig.1. Porter’s Five Forces Framework ............................................................................... 42

Fig.2. Modes of Entry .......................................................................................................... 42

Fig.3. EU Supply & Demand of Biodiesel and Bioethanol ................................................... 42

Fig.4. Production and Production Capacity of Biodiesel in the EU by Country .................. 42

Fig.5. Trend in EU Biodiesel Production 1998-2011 ........................................................... 42

Fig.6. Production of Bioethanol in the EU in 2009 .............................................................. 42

Fig.7. Abengoa Bioenergy’s Plants in the EU ...................................................................... 42

TablesTable 1. Theories Explaining the Internationalization Process of the Firm ........................ 42

Table 2. Data Collection Approach ...................................................................................... 42

Table 3. Case Companies’ Selection Criteria ....................................................................... 42

Table 4. Calculated GHG Emissions for Different Raw Materials ...................................... 42

Table 5. Macro-Environmental Factors for Biofuel Production .......................................... 42

Table 6. Main Biodiesel Producers in the EU and Their Production Capacity ................... 42

Table 7. Main Bioethanol Producers in the EU and Their Production Capacity ................. 42

Table 8. Porter’s Five Forces and Attractiveness of Biofuel Industry in the EU ................. 42

Table 9. Partners of Diester 30% Partners .......................................................................... 42

Table 10. Biopetrol Industries AG Structure ........................................................................ 42

Table 11. Abengoa Bioenergy Partnerships ......................................................................... 42

Table 12. Crop Energies Partners ........................................................................................ 42

Table 13. Summary of Results ............................................................................................... 42

7

1. Introduction

"The fuel of the future is going to come from fruit like that sumac out by the road, or from apples, weeds,

sawdust - almost anything. There is fuel in every bit of vegetable matter that can be fermented. There's

enough alcohol in one year's yield of an acre of potatoes to drive the machinery necessary to cultivate the

fields for a hundred years."

Henry Ford, 20 September 1925, New York Times

Increasing prices of gasoline1 and petroleum2, dependency on oil of some countries, climate

change and the introduction of policies for reduction of gas emissions became main factors

to set a new outlook towards fuel industry in the European Union. Moreover, the number of

cars on the road is expected to triple by 20503 and consequently the demand for fuel to

increase. In search for alternatives of green future in this area, one of the options identified

is fuel made of renewable sources. Some of the reasons for which biofuels are

advantageous over traditional fuels include greater energy security, reduced greenhouse

emissions, foreign exchange savings, and solutions to socioeconomic issues related to the

rural sector. Although, green future may sound desirable and attractive for investors, it has

its obstacles. The emerging industry of bio-fuels has its challenges such as uncertainty in

supply amounts, market demands, market prices, and processing technologies (Demirbas,

2009). This paper investigates what are the essential macro-environmental pressures in the

biofuel industry, how biofuel producers expand their operations within the borders of the

European Union, and how they can proceed to do business in near future.

In addition, the interest of conducting the present research was driven by enormous

number of studies already available for both world largest biofuel producers, Brazil and

USA, and the lack of existing research papers from business perspective in the European

Union. On one side, it will be interesting to examine this topic since there are already

present policies and political discussions, and on other side, technology advances are

distinctive for the territory of the European Union. The purpose of this study is to build

knowledge on the biofuel market characteristics and the internationalization process of

biofuel producers based on market analysis and four cases.

8

1.1. Problem Statement

The purpose of the present paper is to explore what kind of strategic choices biodiesel and

bioethanol producers take to expand in the EU market through market entry modes and

network relationships. It will be interesting to identify if there were any internal or external

factors to their internationalization decisions. Furthermore, based on the discussion of the

market analysis and the four cases, recommendations for future strategic actions will be

suggested. For these reasons, the problem statement can be formulated as:

The problem will be answered by addressing the following questions:

How the market of bio-diesel and bio-ethanol in the EU can be characterized?

What kind of entry modes and business relationships do biofuel producers prefer

and are there any reasons for their strategic choices?

What kind of internationalization strategies and business focus could biofuel

producers in the EU follow in future?

This paper aims to provide insight into the dynamics of how firms internationalize in the

biofuel industry in the EU and for this aim analysis of the market conditions and main

biofuel producers will be developed. To achieve theoretical understanding of the issue, two

main theories, industry-based and institutional-based theories, are used to explain the

industry and institutional environment of the market. To understand the internationalization

process, the four main internationalization theories are discussed. For this purpose Learning

perspective, Strategic competition perspective, Inter-Organizational perspective and

Institutional-economic perspective are chosen as underlying framework that includes a

dynamic element by focusing firm’s choice of market expansion, entry modes, and at last

the biofuel producers’ network of business relationships is discussed.

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How do biofuel traders internationalize in the EU in terms of entry decisions (market

expansion strategies, market entry modes and business relationships)?

1.2. Delimitations

The present paper reviews the industry only within the boundaries of the EU. This means

that legislation distinctive for regions outside of the EU is not included. The biofuels that

are on focus are liquid biofuels from first generation – biodiesel and bioethanol made from

all available food crops for biofuels in the EU. Second and next generations biofuels are not

discussed in details, however, this topic is discussed to certain extend in relation to the

industry analysis and the discussion of the four cases. The usage of biofuels can be for

generating electricity, heat or for transport (Unilever, 2007). The main focus of the present

paper is biofuels in the transport sector while biofuels for energy supply are excluded.

1.3. Structure

The present work starts with introduction of the topic and arguments why biofuels could be

relevant issue for further discussion. With defining the problem statement the following

sections come as supporting structure to provide answers to the posed questions.

Delimitations of the paper define the boundaries to which this topic is reviewed and what

matter is excluded of focus.

In the theoretical framework, several theories are discussed with reference to the

strategic behaviour of companies and what kind of expected strategic actions companies

take in their process of internationalization.

The methodology of the present work comprises of ontological and epistemological

assumptions, research approach, data collection method and analytical tools.

The industry analysis section is based on analysis of existing information about the

products, the raw materials, the customers, the competitors and the substitutes as well as the

analysis of the macro environmental factors influencing the business.

Four cases from the EU biofuel industry are explained in regards to proposed search

criteria in the Methodology section.

Discussion follows based on the gathered information and proposed theories. The

present paper finalizes with elaboration on hypotheses, conclusion and suggestions for

future research.

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2. Theoretical Framework

To understand the market conditions in which firms operate, their market expansion

strategies and their choice of market entry modes, first it is critical to gain knowledge on

the theoretical background of the topic of international business environment. This section

starts by clarifying the employed terminology and continues with the discussion of the

theories from international business strategy and the theoretical perspectives on the

internationalization of the firm.

Industry-based theory combined with institutional-based theory is discussed to

explain the industry characteristics in which firms operate. In addition, the main

internationalization perspectives are employed to build on the understanding of the

internationalization of the firm, discussing market expansion strategies, and entry modes.

The theoretical background aims to construct understanding about the market environment

and the determinants of international business strategy.

2.1. Globalization, Internalization and the Multinational Enterprise

As a starting point for the literature review, a clarification of the employed

terminology is necessary to ensure correct construction of the theory explained further. The

key terms in the present paper are globalization, internationalization and multinational

enterprise. Globalization can be defined as the process referring to the gradual integration

and increasing interdependence of national economies (Cavusgil, et.all 2008). The

interconnection of these economies leads to interdependence of buyers, producers,

suppliers, governments and non-government institutions in different countries (Hamilton &

Webster, 2009). Globalization also has its implications for businesses expanding at a global

scale and pushing them towards greater international competition. This is one of the reasons

why the focus of the present paper is on internalization of a firm’s worldwide activities,

which is one of the dimensions of international strategy. Globalization is a reason for

companies to locate their value-adding activities such as production, product development

(R&D), marketing, and servicing a product, in particular countries (Hollensen, 2008),

benefiting from cost advantages, achieving economies of scale and scope, spreading risk or

gaining closer access to customers and suppliers in order to maintain competitive advantage

(Cavusgil, et.al 2008).

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According to a business dictionary4 a multinational enterprise is an organization that

operates in more than one country, one that is governed from a home country and that

receives one fourth of its revenue from operations outside its home country. Additional

understanding of the term multinational enterprise is suggested by Dunning (1993) who

defines it as enterprise "that engages in foreign direct investment . . . and owns or controls

value-adding activities in more than one country" (p. 3). Beyond having operations in

large number of countries and having multinational capital, the Multi-national Corporation

(MNC) can serve the role of a good economic agent, meeting the requirements of the local

government in the country where they are established (Hulin-Cuypers, 1973) and creating

new job opportunities (UNIDO, 2011).

2.2. The Macro-Environment Institutional-based view and industry-based view are employed to provide critical

comprehension of the macro-environment pressures that impact the strategic choices of

organizations when they expand their operations abroad. Furthermore, the

internationalization perspectives are discussed to provide understanding about these

companies’ strategic choices when expanding abroad.

Industry-based theory takes into account the interaction between companies and the

market. The industry structure conditions, such as the degree of competition, barriers to

enter and exit the industry as well as product homogeneity, define the extent to which a

company can achieve advantage (Porter, 1980). Industry-based theory is concerned with the

way firms compete with each other and emphasizes the strategies firms undertake in their

interaction with the market (Cabral, 2000). This theory focuses on imperfect competition,

particularly oligopoly5, where few firms compete on the market and according to this theory

the internationalization decisions of a company, are influenced by the degree of

competition and rivalry in a specific industry (Jiang, 2012). Industries vary in policy

environment and globalization potential, for instance, technological advances in particular

innovation including new product designs and new productions processes (Cavusgil, 2008).

12

Institutional-based theory is used in addition to the industry-based theory to broaden the

picture of the business environment. This theory focuses on the context of institutions

particularly the influence of governmental and non-governmental organizations (Peng et.al

2008). In this paper such institutions will be considered with authority within the

boundaries of the EU with main focus on the European Union institutions. North (1989)

defines institutions as “rules, enforcement characteristics of rules, and norms of behavior

that structure repeated human interactions” that cause consequences for the choices

individuals make. Companies not only operate in a system of organizations involved in

both competitive and cooperative relations but also are affected by local and distant actors

and forces (Scott, 2008). Institutional-based theory argues that strategic choices of firms are

influenced by the interaction between institutions and firms (Jiang, 2012). Sometimes, to

compete internationally firms have to conform to institutional requirements. Institutions

such as United Nation and International Standards Organization seek to institutionalize on a

global level through the creation of norms, rules and standardized procedures called

certification (Brammer et. al 2012). Implementing such procedures, are considered as part

of firm’s standardization strategy that pursues to comply with international institutional

regulations to remain internationally competitive. In the present paper, institutional

pressures are incorporated in the market analysis and later in the discussion of firms’ efforts

to integrate institutional regulations into their strategies.

Industry-based and institutional based theories are incorporated in Porter’s Industry

Structure Analysis and PEST analysis which are employed as analytical tools

encompassing the industry structure conditions and industry attractiveness to bring forward

a clearer picture of the environment in which a firm operates. In this way it will be defined

how the characteristics across industry influences the internationalization decisions applied

further in particular to the biofuel industry in particular.

PEST analysis is a selected method for analysis of the macro-environment

conditions that are outside the control of an organization that affect firm’s strategic

decisions (Cadle et. al, 2010). The PEST checklist includes several factors6 such as (1)

political, the intervention of national government and the EU in the economy through laws

and taxations (Downey, 2007); (2) economic, investments needed for production and

13

utilization; (3) socio-cultural shifts in values, culture and change in lifestyle, that can call

for certain products and service and environmental changes due to climate changes that

affect demand (Cardeal, 2008); (4) technological improvements that create new products

and processes, reduce costs, improve quality and lead to innovation (Lynch, 2009).

Porter’s Five Forces Analysis (see Fig.1.in Appendix) is also a method for external

environment analyses, however, it has slightly different focus than PEST analysis. It

examines the industry to identify business pressures that are brought to pertain to an

organization (Cadle et. al, 2010). This framework gives understanding about the

attractiveness of the industry. The sources of the business pressures are divided into five

categories: industry competitors, new entrants, substitutes, buyers, and suppliers (Cardeal,

2008). The level of the competition is considered by the number of competitors that hold

the power of the market. The rest of the factors include entry barriers in regards to initial

financial investments, extend of availability of current substitutes7, buyer’s preferences and

switching costs as well as who has the power in a buyer-supplier relationship (Cadle et. al,

2010). Critical review about Porter’s framework shows that this model is static while the

competitive environment in practice is constantly changing (Lynch, 2009). This is why the

gathered data and the analysis in the present paper are valid for the time the research is

conducted.

In summary, the industry-based and institutional-based theories can explain industry

structure conditions and the macro environment pressures as reasons that influence the

decision to internationalization of biofuel traders in the EU. Both theories will be applied

further in the market analysis and discussion.

2.3. Internationalization of the firm Theories predict the internationalization behaviour of companies. It is important to

address the differences between the individual theories and identify the different issues they

examine and their limitation. Comparison of the four main internationalization theories -

Institutional-Economic Perspective, Learning Perspective, Strategic Competition

Perspective, and Inter-Organizational Perspective, aims to present several perspectives and

a broader picture of the internationalization strategies.

14

According to the Institutional-Economic Perspective, a company would choose a

cost-efficient way to transfer its actions abroad. According to the transaction cost theory,

which is one of the theories that explains the Institutional-Economic Perspective,

companies minimize their transaction cost1 (TC) through internalization. Eggertsson (1990,

p.14.) defines TC as, “the costs that arise when individuals exchange ownership rights to

economics assets and enforce their exclusive rights.” TC can be measured by two kinds of

costs, ex-ante and ex-post costs. Ex-ante costs are related to search and the contracting

costs, made prior to the transaction and ex-post costs are concerned with the costs that

occur after the transaction such as monitoring and enforcement costs. In other words, ex-

ante costs can be characterized as marketing costs necessary to establish communication

between the company and the potential seller or buyer and contract costs related to currency

flow exposure as well as costs concerning ownership issues. While ex-post costs are related

to monitoring costs such as logistics and administration. According to Coase (1937), these

transaction costs are minimized and even eliminated if they are performed within a firm.

Although, as a firm expands and becomes larger, the costs of organizing additional

transactions within the firm can rise. That is why the balance that needs to be reached is

when the costs of organizing an extra transaction are equal to the costs involved in carrying

out the transaction in the open market (Coase, 1937). Internalization, vertical integration,

can be a suitable situation when a company has a certain asset that provides their business

with competitive advantage such as intellectual property or patented technology. In this

case, a company would prefer to keep this kind of assets and “know-how” within the

organization and avoid opportunistic behaviour carrying out the transaction through

intermediaries.

Although, a sales subsidiary or an own production plant can allow the company to

maintain desirable degree of control, it could be a risky entry mode since it requires heavy

investment and market knowledge, and little flexibility in case reacting to market

uncertainties (Hollensen, 2008). The Learning Perspective, the second of the four

internationalization theories, sheds a light from a contrasting point of view to the

internationalization process. This underlying theory assumes that a firm seeks opportunities

to increase its long-term profit being at the same time risk averse in decision making

1 the cost of participating in a market

15

(Johanson & Vahlne, 1977). This kind of internationalization model, known also as the

Uppsala model, is based on the theory of the growth of a firm and the assumption behind it

is that firms have imperfect access to information. Internationalization can be explained as

the process of gaining experiential knowledge and operation in an international market

(Eriksson et. al 1997). In this way experiential knowledge is acquired through experience,

and this kind of experience is essential for a company to gain market-specific knowledge

which provides knowledge about the characteristics of a particular national market

(Johanson & Vahlne, 1977; Weerawardena, 2007). In addition, this process of gaining

market-specific knowledge is referred as overcoming liability of outsidership. In the

learning perspective the firm first develops domestically and then it gradually develops

operations abroad. In this process the most important obstacle to internationalization are

lack of resources and knowledge (Johanson & Wiedersheim-Paul, 1975). This perspective

assumes that to overcome this obstacle and avoid high level of uncertainty about the

market, a company will start exporting to neighboring countries or countries with greater

psychic distance (Andersen, 1993). Psychic distance refers to the perceived differences,

such as culture, language or economic situation, between home country and target

countries, where a company is willing to expand business operations (Brewer, 2007). The

Uppsala internationalization school defines sequence of stages of internationalization,

establishment chain, and incremental commitment to another market starting with no

regular exporting activities (stage 1), selling abroad via independent representatives (stage

2) to establishing sales subsidiaries (stage 3) and own production plants (stage 4) (Johanson

& Wiedersheim-Paul, 1975). In this internationalization process the company increases

gradually through consecutive expansion modes. If a firm is risk averse, not well familiar

with the operating environment, they would prefer exporting modes and licensing, contract

manufacturing (intermediate modes) or even minority joint ventures because these modes

require low levels of financial and resource commitments (Hollensen, 2008; Ekeledo &

Sivakumar, 1998). However through these modes international operations are not likely to

be developed and this can result in loss of opportunity. The mode choice can be also

characterized with the degree of control over international operations which depends on the

level of resource commitment (see Fig.2. Modes of Entry in the Appendix). With low

resource commitment modes as exporting can not be obtained control over the way

16

product/service is marketed and sold abroad. If a firm decided to pursue licensing and

contract manufacturing as entry modes, it must first comply with quality standards. Joint

ventures also limit the degree of management control over international operations and

conflict between different parties can become unavoidable. (Hollensen, 2008).

Studies critiqued Uppsala model because it was found that some companies do not

follow the deterministic incremental stages but take an accelerated and more proactive path

of internationalization (Knight & Cavusgil, 2004). Moreover, the companies that

internationalize early are known as Born Global and their success is rooted in the internal

capabilities of the firm (ibid). Born global is defined as “business organizations that from

inception, seek to derive significant competitive advantages from the use of resources and

the sale of outputs in multiple countries” (Oviatt & McDougal, 1994, p.49). Born globals

are firms that have market knowledge built over years of international operations

(Weerawardena, 2007). Knight and Cavusgil (2004) suggest explanation of the early

internationalization can be facilitated by innovation within the firm. Such companies also

directly enter global markets early with highly innovative products (Oviatt & McDougal,

1994). In the accelerated internationalization long-term goals are profitability, sales growth

and return on investment, but they cannot be obtained easily. Then, the short-term objective

of a born global is to establish presence in multiple markets overseas quickly

(Weerawardena, 2007). The case of Born Globals shows that companies do not necessarily

need to follow consecutive expansion modes, but instead expand rapidly due to unique

source of competitive advantage.

Moreover, a theory that explains the internationalization process of a company

based on resources from which they provide competitive advantage is the Strategic

Competition Perspective. In this perspective, however, company’s choices to expand

abroad are strongly influenced by the environmental conditions and carefully assessed

against the internal resources of the company. The main goal of the company is in survival

and financial earnings. The industry structure and the position of the business activities of

the company are decisive factors (Rask, et. al 2008). Especially, in emerging industries

where operating procedures and technology are in process of developing, a first mover

advantage could profit a company with stable leading position and strong market shares.

According to Porter’s Generic Strategies, competitive advantage could be achieved through

17

differentiation strategy, when a company offers unique product or service, or through cost

leadership, when a company offers a product at a competitively low price. In the initial

phase of internalization, a firm seeks to leverage its domestic competitive position, to

diversify risk, and to extend economies of scale by establishing a presence in multiple

markets (Yip, 1989). The firm would have lack of experience in international operation but

will focus on tangible or intangible specific assets, such as innovative products or patented

process, to leverage internationally (Douglas et.al 1989). Once the firm has established its

position in number of markets it will begin to seek new directions for growth and move

toward the second stage of internationalization (ibid). The focus shifts toward penetrating

the markets more fully, building experience and knowledge. In this phase the aim of a

company is to achieve economies of scope and leverage assets and core competencies (Yip,

1989). Key decisions include development of products and product lines which offer

promise of market growth in each country and actions to stimulate local market

penetrations (Ghemewat, 2007). In the third phase, a company aims to achieve efficiency

and synergy from its global operations. To achieve this purpose, the organization has to

create infrastructure for knowledge sharing among headquarters and subsidiaries where

they can use the gained knowledge in different contexts.

However, a company is not only dependent on its internal resources since it is part

of a market where different market players put pressure and shape the business standards.

In such case, internal resources may not be sufficient to achieve competitive advantage and

global reach, and external resources from the business environment could be crucial not

only for the survival of the company, but also for achieving competitive advantage. The last

employed perspective to internationalization, Inter-Organizational Perspective, describes

the markets as networks of relationships between firms (Johanson & Mattson, 1988).

Business networks emerge in market where conditions are changing rapidly (Hollensen,

2008). This perspective, known also as the Network Model, considers the choices to

internationalization determined by political negotiations, internal and external coalitions

(Rask, et. al 2008). The unit of analysis here is the individual transaction and the network

relation among companies. Such kind of relation can be with the purpose of exchange of

different information such as technical relations, economic relations, social or legal

relations. The company analyzes the situations in which they can develop cooperation

18

strategies towards foreign actors as competitors, suppliers, host-country authorities and

financial institutions (Johanson & Mattson, 1988). The company’s international

competitiveness depends on critical resources from the business environment and this is a

reason, the internationalization process to become a result of investment in relationships

between companies with complementary activities and resources (Hollensen, 2008). It can

be less costly for a company to acquire access to particular resources by establishing

dependant relationships that will lead to alternative solving problems to R&D or sales.

Moreover, such relationships would assist a company to overcome the liability of

outsidership (Johanson & Vahlne, 1977) and become part of important business network in

a new market.

Market expansion strategies refer to the timing of a market entry. This is a term that refers

to whether firm enters a number of new country markets simultaneously or sequentially

(Douglas, et. Al 1989). Market expansion strategies in this sense are two - market

diversification and market concentration. Market diversification is the strategy that is

related to fast penetration into a large number of countries while the second strategy is

based on concentration of resources in a few markets and gradual expansion into new

territories (Ayal et.al 1979). In the long run, a strategy of diversification will lead to a

reduction in the number of markets, as a result of consolidation and abandonment of less

profitable markets. The level of resources allocated to each market in a strategy of

diversification will be lower than with concentration when financial and managerial

resources are fixed (Douglas, et. Al 1989).

Small and medium-sized enterprises (SMEs)8 exploit domestic opportunities to

leverage resources which will be later used in international markets. The company strategy

for market expansion must focus on the product market segment where the company can

achieve competitive advantage (Hollensen, 2008 p.178). Then the company must decide

whether to concentrate resources on limited number of similar markets or to diversify

across number of different markets. A company can follow strategy of entering countries

similar in market characteristics and infrastructure to the home market or the company can

decide to follow a strategy to diversify risk by entering countries that differ in terms of

environmental or market characteristics, to spread operations over broad geographical base.

19

Entering market sequentially can require great resource commitment while

simultaneous entry will enable the firm to establish position in new markets ahead of their

competitors and potential scale of economies can arise (Douglas, et. al 1989).

The aim of the present paper is to examine what are the biofuel market conditions

decisive for the strategy of the biofuel producers in the EU. Furthermore, it will be

investigated which the preferable market expansion strategy by biofuel producers is and

how their internationalization process can be explained based on the discussed theories in

the present section in connection to the problem statement, which are summarized in Table

1 (see Appendix).

3. Methodology

This section elucidates how epistemology, ontology and methodology are related in

the present paper to provide answers of what information exists and how it will be

explored. Different methodological approaches make different assumptions about their

subject area. This means that when the different approaches are applied in practice, they

have to proceed differently when trying to understand, explain, and improve business,

depending on the approach being used (Arbnor & Bjerke, 1997, p.2).

3.1. Ontological and Epistemological Assumptions

According to Arbnor & Bjerke (1997), the choice of research approach depends on

two factors that are the assumptions of the researcher about the reality in which he or she

aspires to acquire knowledge, and the subject area on focus. There are two aspects of the

topic reality – the nature of reality, ontology, and the relationship between the mind and the

reality, epistemology.

Ontology is the study of being in the world and is concerned with the role

assessments play in determining one’s being in the world. The purpose of ontology is to

describe categories of reality and how they are interrelated. The explanation of the reality

of renewable fuels in categories can be considered in several ways.

20

First, they can be derived from biomass conversion, solid biomass (bio-char), liquid

fuels (ethanol, vegetable oil and bio-diesel) or bio gases (biogas, biosyngas and

biohydrogen). However, liquid biofuels are the main focus of study in the present paper

because they may offer a promising alternative in both transport and energy sector not only

in advanced countries but also in developing areas.

Second, biofuels can also be divided to different generations. First generation

biofuels can offer some CO2 benefits and can help to improve domestic energy security. A

‘first generation’ biofuel (i.e. biodiesel (bio-esters), bio-ethanol, and biogas) is

characterized either by its ability to be blended with petroleum-based fuels, combusted in

existing internal combustion engines, and distributed through existing infrastructure, or by

the use in existing alternative vehicle technology like FFVs (‘‘Flexible Fuel Vehicle’’) or

natural gas vehicles (Naik et. al 2010). However, the main disadvantages of this generation

of biofuels are the sourcing of feedstocks, including the impact it may have on biodiversity

and land use and competition with food crops. Second-generation biofuels produced from

‘plant biomass’ refers largely to lignocellulosic materials, as this makes up the majority of

the cheap and abundant nonfood materials available from plants (ibid, p.579). Although, the

production of such fuels is not cost effective because there are a number of technical

barriers that need to be overcome before their potential can be realized. It is anticipated

that, these second generation biofuels could significantly reduce CO2 production, do not

compete with food crops and some types can offer better engine performance. When

commercialized, the cost of second generation biofuels has the potential to be more

comparable with standard petrol, diesel, and would be most cost effective route to

renewable, low carbon energy for road transport. However, they are not widely

commercially available at the moment because their production technology is costly such as

the case of expensive enzymes. The next generations of biofuels as third generation is

based on improvements in the production of biomass and fourth generation biofuels are

aimed at not only producing sustainable energy but also a way of capturing and storing

CO29.

The focus of the present study is narrowed down to first generation biofuels, more

specifically bioethanol and biodiesel, however other fuels can be included in the market

analysis to the extend of explaining substitutes, strategic firm offerings, and competition

21

and further detailed analysis of this kind of fuels will be excluded. Biodiesel can be defined

as the most common biofuel in Europe. It is produced from oils or fats using

transesterification and its composition is close to traditional diesel. Biodiesel can be used in

any diesel engine in mixture with traditional diesel. Bioethanol is an alcohol fuel produced

by fermentation of sugars derived from wheat, maize, sugar beet and sugar cane. Ethanol

can be used in petrol engines as a replacement for gasoline or can be mixed with gasoline to

any percentage (Ahmad et. al 2007).

After defining which product will be in focus, it is critical to define which biofuel

market will be researched. This market can be defined by the producers of bioethanol and

biodiesel. The same market is reviewed within the boundaries of the EU, however, the

analysis of the strategy of the players and recommendations for their future options can

include global perspectives because the network of customers and raw materials

distributors as well as producers is globally interlinked.

Furthermore, the different assumptions regarding ontology define the assumptions

to epistemology. Epistemology questions what knowledge is, analyzing its nature and

relation to truth, belief and justification, and discusses the extent to which a subject can be

known. The objectivity of reality has its roots in epistemology. Reality can dependent on

mental and cultural factors such as perceptions and beliefs, which can be objective or

subjective. An objectivist view of the social world as a concrete structure encourages an

epistemological stance that emphasizes the importance of studying the nature of

relationships among the elements constituting that structure and this is a reason, the

objectivist to be the preferred view in the present study (Smircich & Morgan, 1980).

Reality is viewed as a world expressed itself in contingent relationships between its

elements. The world is seen as a struggle between various interests and influences where

individuals are seen as moving toward the achievement of desirable ends. Such world is

presented by the industry which is on focus with its elements, the buyers, suppliers, and

customers as well as other entities with their own interests and influences. Relationships

between individuals and environment express a pattern of activity necessary for survival

and well-being of the individual (ibid). In such epistemological position, phenomenon

changes over time in relation to its context. The present research is valid for the time it is

22

conducted since the relationships and context can change in future. These epistemological

assumptions define open system theory (Smircich & Morgan, 1980), where epistemology

reflects the conception of the world as an organism, an open system.

The employed scientific paradigm is realism where reality is seen as real but only

imperfectly. The ontological assumption behind reality is that the findings are true since

reality exists separate from the mind (Healy&Perry, 2000). The realism paradigm is

searching towards an understanding of the common reality of an economic system in which

many different players operate inter-dependently (Sobh & Perry, 2005). Any link are

strongly influenced by the context and this is why in the present research it is important to

observe and take into account the context in which the phenomena exist, particularly the

industry in which companies internationalize (Sobh & Perry, 2005). Realism researchers

enter the field with prior theories and can be viewed as additional evidence, that is,

perceptions, which can be used to clarify the imperfectly apprehensible external reality by

triangulating on that reality (ibid). Theory triangulation involves using more than one

theory in the interpretation of the phenomenon and provides different perceptions, but those

different perceptions should not be considered to be contrasting views of the same reality.

They should be considered to foster understanding of the reasons for the complexities of the

same reality (ibid).

The present study is explorative meaning that it does not start with the formulation

of hypotheses. On the contrary, the objective of the study is to formulate hypotheses. The

choice of research approach is influenced by the purpose of the present paper and the

central question of the study (Yin, 2003). Realism researchers do not say that theory testing

should not be done, they merely say that the theory has to be built, and confirmed or

disconfirmed, before its generalisability to a population is tested (Healy&Perry, 2000).

Grounded research method is also a systematic analytical method that does not start with

hypotheses formulation but with data analysis and based on its concepts, categories and

theory are formulated. However, the present research is traditional even though it does not

start with hypotheses formation but it follows the traditional research method where

theoretical framework is used in the beginning to support the findings.

23

3.2. Systems Approach

The chosen methodological approach in the present study is systems approach. The

systems approach assumes that reality of the investigation is objective. While analytical

approach also assumes objective reality, the difference in system reality is that it is

constructed of components which are mutually dependent (Arbnor & Bjerke, 2010).

Moreover, Arbnor and Bjerke (2010) argue that these components in the system function in

such way that they create a result not independently obtainable, known also as synergistic

effect. In order to explain the component it can not be studied in isolation because they are

parts of the system and are explained through the characteristics of the whole system. For

these reasons, systems approach is applied in the case of industry analysis and the four

cases. The interaction of the companies with their macro-environment and the vice versa

are interdependent relationships. Change in one of the factors, for example political

pressures on the market, affects other parts of the system (ibid), as the internationalization

process of a firm, firm’s production and sales volume. A number of factors of reality in the

present study are used to reproduce a systems model.

A reason the systems approach to be the preferred than analytical approach is

because it gives a model of reality that not only describes and explains but aims to create

understanding of that reality. Moreover, systems approach investigates not only the parts of

the system but also the relationship between the parts and the whole system. The system

(the biofuel industry in the EU) viewed in this research has components (rivalry, customers,

suppliers, institutions) and relations among them. Each company can be considered as a

subsystem, also part of the overall system, with their own capacity, resources, size,

network, and departments.

From a holistic perspective, the components in the context can be seen as an open

system, consisted of firms, suppliers, customers, and government engaged in the production

of an economic good, where they interact with the environment (dependent upon macro

pressures such as political, economic, technological and social aspects). In their interaction

with the overall system companies can possibly create synergies. For instance, an industry

can not exist without production of goods because demand would not be met and a

company can not exist on its own but it depends on external resources to create a good or

service and to supply it. In these interactions there is a synergy, an outcome that would not

24

be achievable without one of the factors – industry or companies. This discussion is applied

further in the next section Industry Analysis, incorporated in the PEST and Porter’s five

forces analytical tools. Companies’ resources will not be discussed in detail since the focus

of the present paper is mainly on external factors which influence internationalization of the

biofuel market in general.

The main theories used in this study have been internationalization theory and

international business perspectives focused on macro environment, more particularly on

industry and institutions. Some of the aspects of internationalization see the interaction of

different elements and causal relationships in a ceterus paribus perspective thus assuming

little synergy. While other factors such as the networking model, assumes synergies in the

interaction, and in this way the internationalization process is in line with a systems

perspective (Arbnor & Bjerke, 2010). The theoretical background in the present paper

outlines the reality in which the topic is studied and this reality is represented by

objectivity, interaction and synergies. As last systems approach is the employed method in

this study not only to define the tendency of internationalization on the biofuel market but

also to forecast what strategic actions can be taken on the market.

A suggestion for alternative methodological framework in the present research is

actors approach. If this approach is employed the focus of the study will be shifted. Then

the industry will be seen as consisted of different actors. Actors will be biofuel producers

and suppliers, fuel distributors and car manufacturers, institutions and organizations who

become involved in formal or informal networks. If the actor’s approach is employed, then

the main focus of the present paper, the correlation of players on the market such as

government and companies, and the synergetic relationships in which they engaged in, will

be disregarded.

3.3. Research Design

Based on the research proposition, the case study is the most appropriate strategy for

fulfilling the purpose of the present paper which is to understand the complex connections

and internationalization process of biofuel traders in the chosen market.

The chosen research design for the purpose of this paper is multiple case study. It is

characterized by depth because it probes beneath the surface of the investigation and

25

provides rich context of understanding under study (Zach, 2006). In the present paper

several companies are considered and multiple variables are investigated. The purpose is to

understand the internationalization process in terms of entry modes, network relationships

and expansion strategy. The case of each company will be described to become familiar

with them as a stand-alone entity. They will be analyzed with the searching for cross-case

patterns tactic in the present study through selecting categories to look for within-grouped

similarities coupled with intergroup differences. These categories are suggested by the

central problem statement and the existing literature on the topic of internationalization.

From the within-case analysis and the overall impression, concepts and relationships

between the variables are expected to emerge. If these concepts replicate in several cases

relationships will be confirmed and their validity will be enhanced. Cases that disconfirm

the relationships, moreover, would provide an opportunity for extension of the theory

(Eisenhardt, 1989). Theory development prior to the case study data is essential step in

doing case studies (Yin, 1994).

Multiple case studies within each category allowed findings to be replicated within

category (Eisenhardt 1989). In this way, differences or similarities among several units of

analysis can be observed. When findings are replicated in more than one case they become

more robust. For these reasons, “replication logic”, (Yin, 1994) concludes that multiple-

case studies are more reliable than single case studies and allow higher quality of the

research.

3.4. Data Collection

The chosen method aims to bring reasonable answers to the questions formulated in the

problem statement in the theoretical background based on the industrial and institutional

based theories, the market expansion strategy, entry modes and network model.

Multiple case studies are designed with information found on archives and news

releases on the official websites of the companies. However, the information for the market

will be collected from several sources. Secondary materials will be used since the systems

approach deals with complex reality.

The collected data is both quantitative and qualitative. This combination of both

methods is also referred as triangulation and this combination of methods aims to provide a

26

better representation of the available information on the researched topic and provide

objective construction of reality. Objective understanding is expected since the employed

and analyzed data from official statistics and reports as well as information from the official

websites of companies is expected to be objectively presented and to allow the access of

current and correct data about the researched topic. Although this study is not going to be

based on empirical research, extensive research is conducted to collect information from

national statistics, official international sources, reports, business information databases and

libraries. This kind of research is referred as secondary data collection and it is a research

involving the collection and analysis of primary data, which is previously gathered data for

research and other purposes. The collection of data is strategically divided into two parts.

The first part of the collected information is about the industry structure conditions and

macro-environmental pressures and it is collected through journals, articles, books, and

official websites of authoritative institutions. The second part of the collected information

is about the sample, which is represented by several biodiesel and bioethanol traders with

operations in the European Union. Data is collected through their official websites and

news releases.

Secondary data collection has its advantage of providing access to large amount of

data that can be acquired easily and economically (Herron, 1989). Knowledge is generated

through reexamining the available data of the market and further investigation in particular

to the main players on the market, which by now has not been developed from similar

theoretical perspective. On the other side, to ensure to avoid some of the disadvantages of

this kind of research, reliability must be ensured. The research depends on the reliability of

original data. Reliability is ensured through the collection of data only through official

documents and taking into account original documents’ authenticity and credibility.

The above identified relevant sources are searched with key words to find the

necessary information and answer the proposed questions in the present work. Quantitative

data is used to the extent to define the biofuel production and production capacity.

Qualitative data such as information about the industry conditions of the biofuel market and

its macro-environmental pressures, the entry modes employed by the companies, their

expansion strategies and network relations. The proposed research aims to bring forward

answers to the central question in the thesis: How biofuel traders internationalize within the

27

EU in terms of entry decisions. This is why key dimensions can be formulated to data

collection approach as:

Table. 2. Data Collection Approach

Dimension Key terms

Mar

ket

Industry structure buyers, suppliers, new entrants, substitutes, rivalry

Macro-environmental pressures Political, economic, socio-environmental, technological

Inte

rnat

iona

lizat

io

n

Market expansion strategies Number of markets and resource commitment

Entry Mode firm’s size; firm’s international experience; product characteristics; sociocultural difference between home and host market

Network Company’s connections in foreign and domestic markets

3.5. Case company selection

The problem formulation in the present study calls for deeper understanding of the

internationalization tendency and context of the biofuel industry in the EU, in which

selection of companies becomes inseparable part for the further analysis. Four companies

were chosen – two of them represent biodiesel traders and the other two are bioethanol

traders. The priority in the selection criteria is that these companies are chosen based on

their production capacity, units in the EU to provide international dimension of 1st

generation biofuel producers, and full access to news releases and archives. Since the

present study is multiple case study, Yin (1994) suggests each case to be carefully selected

to represent a specific purpose and in this study the cases are selected to create a picture of

the leading manufacturers in the biofuel sector in the EU. Analysis of the leaders on the

market is necessary to define the main tendency of internationalization in the sector. This is

why companies with not leading production capacity and less than three units in the EU are

not considered as the focus of the analysis. Most of the chosen companies have another

leading business activities and products, however, they also represent a considerable

production role of the biofuel in the EU. This issue is important to be clarified, to avoid

biases and to apply findings for the sector that is on focus.

28

The company cases have been chosen with purposeful selection and this is a

strategy “in which particular settings, persons, or activities are selected deliberately in

order to provide information that can’t be gotten as well from other choices” (Maxwell,

2005, p.88)

The cases in this study are chosen for theoretical reasons since this selection aims to

fill theoretical categories or extend further existing emergent theory (Eisenhardt, 1989,

p.537). The choice of the companies aims to provide understanding of the

internationalization tendency of the biofuel industry in the EU. The selection criteria can be

grouped as it follows:

Table 3. Case companies’ selection criteria

Category Criterion Explanation

Location Within the EU To look at companies within the political

and economical framework of the EU

Industry Bioethanol and Biodiesel

(1st generation biofuels)

They are the most spread and produced

products from the biofuels in the EU.

Firm size MNC with at least 3 international

units

To provide degree of internationalization

Firm’s Website Access to news releases and archives To gather correct and necessary data

Validity 4 different companies To test the validity of one criteria within

several companies

3.6. Validation and Reliability

The validity of this study will be based on the validity criteria for case studies of

Yin (1994) - construct validity, internal validity, external validity, and reliability.

Construct validity can be increased through multiple sources and to ensure this kind

of validity in the present research information will be gathered from company publications

of 4 companies. It is assumed that the company’s publications may not be sufficient source

and this is a reason other official sources to be included. Since this study aims to identify

29

and explain the factors of the internationalization process, it is relevant internal validity to

be discussed. It is assumed that the provided information in the official website and

company’s publications is correct and objective. To increase the internal validity a table

with the summarized findings is designed and patterns are further identified and pattern

matching is used for the analysis in the following sections (Yin, 1994). External validity

refers to the generalization of the study findings and the present findings are valid only for

the biofuel industry in the EU and the same findings do not apply and imply any

conclusions for other industries. Reliability represents the replication validity of the study.

The researcher will represent the information from the official statistics and documents

citing them as closely as possible, avoiding research bias in this way. Replication is

essential to multiple case study analysis and the purpose of the replication is to find logic

across cases and in this way confirms, extends or sharpens theory (Eisenhardt, 1989).

4. Industry Analysis

In this section the market characteristics and issues of biodiesel and bioethanol in the EU

are reasoned. Biofuels are a renewable alternative to fossil fuels and it is expected that in

near future the demand for biofuels will grow (Scotia Capital, 2010). The main drivers

behind biofuels are energy independence, climate change remediation, sustainable green

economic development, and the search for alternative fuels that are lower in cost or in price

volatility. The employed figures in the present section are based on statistics of the

European Biodiesel Board (EBB), European Commission statistics, Eurostat, national

industry organizations and associations as well as governmental sources. PEST Analysis

and Porter’s Five Forces analysis are employed to allow understanding between the

collected data in the present research with the theoretical background explained earlier by

the Industry-based theory and the Institutional-Based theory.

4.1. Biofuel Production and Consumption in the Eropean Union

The biofuel production industry is defined by the trade of the alternative fuels biodiesel and

bioethanol. The economic and political boundaries of the analysed market are defined by

the European Union. The countries, taken into account for the analysis of the EU market

30

can be divided to Western Europe (Belgium, Denmark, France, Germany, Italy, the

Netherlands, Spain, Sweden) and Eastern Europe (Czech Republic, Hungary, Poland,

Romania).

4.1.1. Biofuel Consumption in the EU

The biodiesel and bioethanol consumption in the EU is already growing (see Fig 3 in

Appendix. EU Supply & Demand of Biodiesel and Bioethanol). Biofuels will grow from

2% up to 27% of world transportation fuel by 2050 according to the International Energy

Agency10. The consumption of bioethanol for 2012 is estimated to 5,843 million liters and

13,800 million of liters of biodiesel in the EU Transport Fuel Consumption. It is predicted

that in 2013 the consumption of biodiesel will decrease slightly, while the consumption of

bioethanol will increase with around 400 million liters even though the gasoline market is

shrinking (Flach et. al 2012).

4.1.2. Biodiesel Production

It is important to emphasize that the amount of biofuel production can be defined not only

by the demand but by the production capacity (Stoeglenher & Naradoslawsky 2009). The

production of biodiesel in the EU accounts for 17% in 2009 and 55-60% of the world

production and the European Union remains the major producer of biodiesel in the world11.

The actual production of biodiesel in 2010 is 9,570 tonnes and the actual capacity is twice

as much (see Appendix, Fig. 4. Production and Production Capacity of Biodiesel in the EU

by Country). According to the European Biodiesel Board (EBB), in 2009, biodiesel

production has been decreasing in number of EU Member States (see Fig.5. Trend in EU

Biodiesel Production 1998-2011), including Germany, Greece and the UK, but important

production expansions have been realized in other countries such as Austria, Belgium,

Finland, Italy, Netherlands, Poland and Spain.

The major feedstock for biodiesel production in the EU is rapeseed oil which

accounts for more than 60% of the total input in biodiesel production (Flach et. al 2012).

The use of soybean and palm oil is limited by the EU biodiesel standard DIN EN 14214

since the soybean-based biodiesel does not comply with the iodine value prescribed by this

standard and the palm oil-based biodiesel does not provide enough winter stability in

31

northern Europe (Gelder, 2008). However, this standard is possible to be met by using a

feedstock mixture of rapeseed oil, soybean oil, and palm oil.

4.1.3. Bioethanol Production

Bioethanol is the most produced biofuel worldwide with almost 74 billion litres in 2009.

With a production of 3.7 billion litres in 2009 (see Fig.6 Production of Bioethanol), the EU

ranks third behind United States (54%) and Brazil (34%)12. Total EU production in 2009

represents a significant increase of 31% compared to the previous year with bioethanol

production estimated for 2.8 billion litres. According to EBB in 2009, the biggest producer

is France, second largest producing country is Germany and the third biggest producer

remained Spain. The same year, two countries more than doubled their fuel ethanol output,

namely Austria (+102%) and Sweden (+124%), which are now ranking as fourth and fifth

largest producer respectively. In the last two years, and the first half of 2012, the EU

bioethanol industry faced the same problems as the EU biodiesel industry previously

experienced, namely an excess of production capacity on the market, slackening demand

and competitive imports, mainly from the United States (Flach et. al 2012, p.12). In the EU,

bioethanol is mainly produced from wheat, corn, rye, barley and sugar beet derivatives and

their adoption vary on country basis.

4.2. PEST analysis

4.2.1. Political-Legal Factors

Renewable energy replaces fossil fuels, diversifies the energy supply, reduce carbon

emissions and the oil dependence of the transport sector, which is one of the most serious

issues affecting energy supply security that the EU faces13. The European Commission has

identified biofuels as a key future energy source for transport, concerned mainly by two

factors: first, the EU’s transport system was almost entirely dependent on oil from Russia

and second, the politically unstable regions of the Middle East and Central Asia. In 2001,

another problem facing the EU was not meeting its Kyoto Protocol GHG emissions

reduction target (Afionis & Stringer, 2012). The Protocol sets legally binding targets and

timetables for cutting developed country emissions and the convention encouraged these

countries to stabilise emissions. These are some of the primary reasons for which the EU

32

has decided to increase the use of renewable sources in transport and energy. To support

this initiative, EU had to adopt mandatory sustainability standards and regulations for

biofuels, and ensure their international alignment, market success and avoid acting as

barriers to trade.14

The EU Energy and Climate Change Package (CCP) was adopted by the European

Council and the Renewable Energy Directive (RED), known also as DIRECTIVE

2009/28/EC and is part of this package, entered into force on 23 April 2009 (Flach, et. al

2012). The directive states the sustainability criteria for biofuels that have to include

eligibility for financial support and satisfy the targets. The role of the Member States is to

accept the certification system set by the EU and they are not allowed to have higher or

lower sustainability criteria than those set by the EU (ibid). The EU's climate and energy

targets for the year 2020 can be summarized as15:

• 20% reduction in CO2 emissions16

• 20% of energy coming from renewable sources

• 20% improvement in energy efficiency

• 10% of renewable energy in transport.

These targets are total for the EU, however, they vary for each Member State since these

numbers are set by the European Commission (EC) depending on the current situation and

potential for growth in each country. Sweden, for example, will have to reach 49 percent,

while the target for Malta is only 10 percent (Flach et. al 2012, p.6). The targets for the four

largest economies of Europe: Germany, France, and Italy, are 18, 23, and 17 percent

respectively. Nevertheless, the 10 % of renewable energy in the transport sector of each

member state is obligatory (ibid).

Biofuels certification is necessary to ensure compliance with the EU sustainability

criteria. Some standardization organizations such as the European Committee for

Standardization (CEN) and the International Organization for Standardization (ISO) have

also developed their own sustainability certification schemes. In 2011, the European

Commission announced the first seven biofuel certification schemes (Afionis & Stringer,

2012).

33

Biodiesel can be used in pure form or blended in conventional diesel vehicles with

minor engine changes (Bomb, et. al 2007). Biofuels, however, are usually mixed with

conventional diesel and gasoline. The diesel standard (EN590), issued by the European

Committee of Standardization (CEN) in 2003 accepts up to 5% blending of biodiesel (B5),

which was changed to 10% in 2010 (Peckham, 2007). Biodiesel blends of 10% are

compatible with nearly all existing diesel vehicles and represent a great potential as

transport fuel17. The gasoline standard (EN228) limits the maximum amount of ethanol in

gasoline up to 5% (E5) (Turkscin et. al 2011) even though flexi-fuel vehicles can use

blends of 85% bioethanol (E85) (Bomb et. al 2007). This initiative also aims reducing

emissions of CO2 (carbon dioxide) and other harmful gases to human health and the

environment18. On one side, this initiative can open up the market, however, on the other

side, they limit it.

The biofuel production in the EU is also affected by the global biofuel market. An

explanation for the lower growth rate in EU biodiesel production in 2007 is given to the

persistence of unfair trade practices on the worldwide biodiesel market. The profitability of

EU biodiesel producers had been severely affected by heavily subsidized and dumped

biodiesel from the US (known as "B99") that has been sold in the EU with a considerable

discount. It was a reasonable action by the European Commission to impose anti-dumping

measures and protect consumers19. Moreover, there are other official institutions in the EU

as the European Biodiesel Board (EBB20) that addresses fraudulent practices related to

biofuels.

4.2.2. Economic Factors

Another requirement that biofuels have to satisfy to comply with the macro-environmental

pressures of the industry, is to be economically feasible. The main mechanisms that

governments employ to foster the development of their national biofuel industry are by

imposing tariffs and subsidizing (Afionis & Stringer, 2012).

The income from crop cultivation has to be nationally and internationally

competitive. To reduce the risk of financial loss, feedstock producers can diversify the

crops to different markets as food, animal feed and biofuels (Turcksin, 2011). According to

Council Regulation of the EC with No.1782/2003 crops supplied for the production of

biofuels can receive aid through agricultural subsidies (Grau et. al 2010). For biofuel

34

producers the economic issues are related to investments cost and production capacity.

Combined heat and power production is capital-intensive for farmers because of high

investment demand, big fluctuation in the rate of return on investments, and unpredictable

factors (Raslavicius & Bazaras, 2010). Unlike biodiesel production, bioethanol production

is only profitable in large plants due to economies of scale (Dautzenberg & Hanf, 2007).

However to achieve the desired profit large production plants and their accompanying high

costs necessitate securing investments (Flach et. al p.16). Moreover, biodiesel is more

expensive to manufacture in comparison to diesel (Turcksin, 2011). Because of this, there is

a significant price premium for biodiesel over diesel. Comparing both fuel products purely

on the basis of price, European oil companies have no financial incentive to use biodiesel

since diesel is significantly cheaper. However, on the back of regulation, the EU plays host

to a vast market for the biofuel21. Moreover, if producers enter a relationship with

commercial banks this can expose them to potential financial risks.

The fuel distributors’ profit will be determined by the potential of sustainable fuels

in the long run and the additional cost related to the adoption of refueling infrastructure or

converting of existing one. For the end users the ownership of a biofuel compatible car

should not be more expensive than traditional transport vehicle. If the price does not

promise potential savings, a sale of such green vehicle will be difficult (Turcksin, 2011, p.

204-205). Green technology cars, moreover, may become competitive advantage of car

manufacturers and be cost-efficient investments. Furthermore, biofuels can bring economic

growth in many rural areas.

All of these initiatives, nevertheless, require tax cuts and subsidies which would

impact the government. The European Commission, however, argues that in the period

after year 2020, biofuels must be subsidized only if they have great reduction importance of

the GHG (greenhouse gas) and are not produced of food crops (GreenTech, 2012).

4.2.3. Socio-Cultural and Environmental Factors

"It's a crime against humanity to convert agricultural productive soil into soil ... which will be burned into

biofuel... What has to be stopped is ... the growing catastrophe of the massacre hunger in the world."

Jean Ziegler, 26 October 2007, News Conference at the UN

35

UN, however, disagrees to the above quotations arguing that there were both opportunities

for international development as well as risks. The main issues of 1st generation biofuels

discussed below are the “food vs. fuel” controversy, the destruction of green lands and the

real reduction of GHG is questioned.

According to 2011 issue of OECD-FAO Agricultural Outlook, it is forecast that

13% of the world grain production, 15% of the vegetable oils and 30% of the sugar cane till

2020 will be used for the production of biofuels which is considerable threat of hunger, and

increasing food prices (European Environmental Bureau, 2009). It is arguable, however,

that the increasing food prices are less directly related to biofuels because food

consumption has also increased. For instance, rice and wheat, neither of which is used in

biofuel production, have been consumed faster than each crop has been produced in the

past few years (Baier et. al 2009). Moreover, food prices are influenced by many other

factors, including economic growth (i.e. crude oil prices, exchange rates, growing demand

for food and slowing growth in agricultural productivity), international trade, currency

markets, oil prices, government policies (i.e. agricultural, energy, and trade policy of other

nations) and bad weather. It can also be concluded that increased demand of food is largely

a result of population and income growth22. Furthermore, there is increasing debate that

grazing fields have been turned into crops fields for biofuel production and this leads to the

increase of food prices and decrease the territory for pasture. However, according to

economists23, biofuels play only 3% role in the increase of food prices. In addition,

according to the sustainability criteria of the RED, the produced biofuels must not be

produced from feedstock grown on lands with forests and grasslands or wetlands with high

carbon stocks (Hitchings & Monique, 2010).

A Canadian study published by the Global Renewable Fuels Alliance concluded

that world biofuels production in 2009 reduced global greenhouse gas (GHG) emissions by

123.5 million tonnes, a 57% reduction compared to equivalent petroleum fuels (Scotia

Capital, 2010). The European Commission’s Joint Research Center (JRC) calculated GHG

emissions for cultivation, processing, transport, and distribution for different raw materials

(see in Appendix in Table 4,). Typical GHG savings represents savings for a particular

biofuel production pathway (Flach et. al, 2012).

36

Cultivation should happen in a sustainable way (Turcksin et. al 2011). Moreover, if

biofuels are produced in sustainably harvested feedstocks using energy efficient production

processes, they can reduce greenhouse gas (GHG). If, however, they are not produced in

sustainable way, then the production process would have significant negative effect on the

environment causing increasing GHG emissions (Feld, 2011; Baier et. al 2009;

Poirer&Franco, 2009).

The conflict over using food crops for fuel, triggered by 1st generation biofuels such

as corn-based ethanol, has led scientists to search for “sustainable” next generation biofuels

based on grasses, plants, wood and residues that do not directly compete with food crops

and can be grown on marginal lands. (Pringle, 2011)

4.2.4. Technological factors

According to the European Association for Bioindustries, the production of 1st

generation biofuels uses technology that is well-known today and production methods are

not complicated. Biofuels are mainly needed for transport. For all other stationary energy

demands like low temperature heating, process energy and electricity other options can be

used. As long as the technology to run vehicles will not change, biofuels offer an option to

fossil fuel (Stoeglenher & Naradoslawsky, 2009). It is argued, moreover, that biofuels can

improve the performance of the engine. Biodiesel can enhance lubricity while the higher

octane number of the bioethanol improves combustion (Trucksin et. al 2011). The

discussion from the PEST analysis above can be summarized as current trends and their

impact on the industry.

Table 5. Macro-Environmental Factors for Biofuel Production

Context Trend ImpactPositive Negativ

ePolitical-Legal Political incentives supporting biofuel production X

Economic High Investment Costs and Future uncertainties XSocio-Environmental

Can reduce greenhouse emission when produced sustainably, however, main issue remains Food vs. Fuel controversy

X

Technological Well-known production methods and Compatibility of biofuels with traditional vehicles

X

37

To summarize, the advantages of biofuel production include the reduction of gas emissions

and other substances in the atmosphere which cause global warming, increasing the

independency of countries on importing petroleum from OPEC and positive impact on

employment in rural areas. First generation biofuels have also their disadvantages. Large-

scale production of first-generation biofuels cannot be seen as an alternative to fossil fuels

due to land requirements and competition with food (Grau et. al 2010). Furthermore, the

production of 1st generation biofules is related to usage of water resources in areas with

scarcity of it (Turcksin et. al 2011). This is a reason 2nd generation biofuels to be developed

to address the problems and potential issues of the 1st generation. However, this next

1Endnotes:? http://www.eia.gov/countries/prices/gasolinewithtax.cfm2 http://www.eia.gov/countries/prices/dieselwithtax.cfm3http://www.shell.com/home/content/environment_society/environment/climate_change/

biofuels_alternative_energies_transport/4 http://www.businessdictionary.com/definition/multinational-corporation-MNC.html5 http://www.merriam-webster.com/dictionary/oligopoly6 http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm7 http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_11.htm8 http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm9 http://energyfromwasteandwood.weebly.com/generations-of-biofuels.html10 http://www.iea.org/newsroomandevents/pressreleases/2011/april/name,20302,en.html11 http://www.biofuels-platform.ch/en/infos/eu-biodiesel.php12 http://www.biofuels-platform.ch/en/infos/eu-bioethanol.php13 http://www.biofuelstp.eu/legislation.html14 http://www.iea.org/newsroomandevents/pressreleases/2011/april/name,20302,en.html15 http://www.upm.com/EN/ABOUT-UPM/Businesses/Biofuels/Pages/default.aspx16 http://www.iea.org/publications/freepublications/publication/name,3976,en.html17 http://www.biofuels-platform.ch/en/infos/eu-use.php18 http://www.biofuels-platform.ch/en/infos/eu-directive200330.php19 http://www.biofuels-platform.ch/en/infos/eu-biodiesel.php20 www.ebb-eu.org21 http://www.risk.net/energy-risk/feature/2189653/european-biodiesel22 http://biofuelsandthepoor.com/facts-and-definitions/23 http://www.bbc.co.uk/news/world-europe-19688358

38

generation biofuels are not attractive alternative yet because their technology is not fully

commercialized (ibid).

4.3. Porter’s Five Forces Analysis In this section Five Forces analysis is used to determine the competitive intensity and

therefore attractiveness of the biofuel consumption market in the European Union. The aim

is to find out what are the factors affecting the strength of competition in the European

biofuel production market, how the market performed and who the top competitors are. The

biofuel production market will be analyzed with biodiesel and bioethanol producers as main

players. Fuel and energy distributors are considered as key buyers, and suppliers of

feedstock as key suppliers.

The main biodiesel and bioethanol producers are summarized in Table 6. Main

Biodiesel Producers in the EU and Their Production Capacity and Table 7. Main

Bioethanol Producers in the EU and Their Production Capacity (in the Appendix.)

4.3.1. Threat of new competition

On one side, it can be argued that the biofuel production industry requires high investment

costs. Biofuel production requires large plants with specialized equipment (Datamonitor,

2011). This is not only an expensive initiative but also time consuming and requires

government licensing. Estimated biofuel production costs show significant differences

depending on factors such as scale of the plant, technology complexity and feedstock costs

(IEA, 2011). Such factors may impede the potential investors in this sector. Moreover,

according to EBB, Diester Industrie and Abengoa Bioenergy have already been two of the

main established players in biodiesel and biofuel production respectively and they are also

deterrent to new entrants.

On the other side, the industry is rapidly expanding and the EU institutions

intervene with initiatives and legal instruments to support industry growth (Hitchings &

Peckham, 2009). Moreover, patent is not required for the production process, products are

not differentiated and many strong brands do not exist internationally (Datamonitor, 2011).

The industry growth is not the same in all EU Member states as already discusses in section

39

Biofuel Production. This means in some countries biofuel production is still a niche and

could be an attractive target for new investors. All these factors represent favorable

conditions for new entrants.

It can be concluded that the existing barriers to entry may not stop new investors since the

market is expanding rapidly and is supported from the government. For these reasons it can

be concluded that the threat from new entrants is strong.

4.3.2. Threat of substitute products or services

According to the statistics of the European Biodiesel Board as well as Datamonitor (2011),

the biofuel production industry experiences a strong growth, however, it still moves slower

than in comparison to the petrol and the diesel that are the existing substitutes for

bioethanol and biodiesel respectively (Eurostat, 2012). The costs for switching from using

traditional fuels to biofuels is low since fuel distributers already have the installed

infrastructure and most cars can run on biofuel without major changes. On the other side,

without substantial fiscal support, biofuels would remain more expensive than their

substitutes (Motaal, 2008). It is a paradox, that even in biodiesel where the EU is the

world’s leading producer, costs are still higher compared to the US, not to mention Brazil

(Afionis & Stringer, 2012).

The EU plans to withdraw the subsidies for biofuels after certain period. As both

kinds of fuels are close substitutes the considerable difference between them is that fossil

fuels are still the cheaper option while biofuels are the environmental alternative

(Datamonitor, 2011). For these reasons, substitutes are considered a strong threat for the

biofuel market.

40

4.3.3. Bargaining power of customers (buyers)

The main buyers of biofuel products are the fuel and energy distributors, which are usually

large multinational companies. With the increasing fossil fuel prices and environmentally

conscious green users, the demand for renewable fuels is rising. Demand is met when

producer’s supplies are provided by fuel retailers to end consumers. However, this demand

is still lower than the demand for traditional fuels (Datamonitor, 2011). Biofuels are

available at some fuel stations, however, retailers do not buy them in large amount for stock

despite the existing infrastructure (ibid). For all these reasons it can be concluded that

retailers are able to exercise bargaining power over producers and buyer’s decisions are

considered as strong threat.

4.3.4. Bargaining power of suppliers

Biofuels are produced from sugar, corn, rapeseed, soy, and biomass. This is why main

suppliers are agro-food companies and farmers (Datamonitor, 2011). On one side, the

supplier power depends on the size of the supplier. The larger the farm or the more

independent the supplier, the more bargaining power they will have over the biofuel

producers who are the buyers in this case. The supplies for biofuel production come from

farms or agro-food companies with large areas of land where crops are grown mainly for

biofuel production and in this way such large entities would provide sufficient amount for

the production process.

On the other side, however, crop growing is not a specialized process so the existing

potential suppliers are many. This means that biofuels producers can switch supplier at a

low cost and in this way supplier bargaining power is reduced. Since biofuel producers can

diversify vertically, this also represents another threat to suppliers (Datamonitor, 2011). It

can be concluded that supplier’s bargaining power is low or average.

41

4.3.5. Rivalry

The biofuel market in the EU had strong growth in the last years and the growth is expected

to grow since society is becoming more environmentally conscious and the EU supports

this market. The existing biofuel producers already specialize in several areas and they not

always compete for the same product (Datamonitor, 2011). For instance, biodiesel

producers do not specialize necessarily in bioethanol products. It is also important to be

taken into account the fact that certain sectors are more competitive in particular countries.

The competition is not considered as intense. For these reasons and the strong growth of the

market, it can be concluded that the rivalry is average.

The emerging biofuel industry is attractive to many companies but it has many

uncertainties. The major factors affecting the industry profitability are costs of the

feedstock and technology, the regulation and the cost of the substitutes. If companies

decide to enter, they must diversify the risk and build relationships that could help them

reduce uncertainty (Ceasar et. al 2007).

The above discussion can be summarized in the table below.

Table 8. Porter’s Five Forces and Attractiveness of Biofuel Indusrty in the EU

Force Note LevelThreat of New Entrants High investment costs but growing market StrongThreat of Substitutes Low switching costs but cheaper substitutes Strong

Bargaining power of suppliers Crop growing is not a specialized process and there are many suppliers

Moderate

Bargaining power of buyers Lower demand for biofuels than traditional fuels Strong

Rivalry Strong growth of the market and not intense competition

Moderate

Attractiveness All the five forces drive to moderately to highly attractive industry

Moderate to High

5. Biofuel Producers in the EU

42

In this section several of the established players on the biofuel market in the EU are

analysed. The purpose of this section is to provide the necessary information on

internationalization strategies of those companies with great capacity production of first

generation biofuels that have plants abroad. The chosen biodiesel producers which fulfill

companies’ criteria from the Methodology section are Diester Industrie and Biopetrol

Industries. Despite the fact that Biopetrol Industries’ home country is Switzerland, which is

not part of the EU, it is included in the analysis since it has considerable operations in

countries, Member States of the EU. The bioethanol producers, answering the same criteria

are Abengoa Bioenergy and Crop Energies.

5.1. Diester Industrie and Diester Industrie International24 The information is quoted from press releases and facts provided at the official website of

the company25.

Diester Industrie (DI) was established in 1992 and is the leading producer and marketer of

biodiesel and plant glycerine in the EU26. DI is a subsidiary of the French agri-food group

Sofiproteol and operates a joint venture, Diester Industrie International (DII), together with

the American-based agro-company Bunge Limited (Datamonitor, 2011). DI is active on the

French market, but also on the European market through its subsidiary DII created in

200527. DII is owned 60% by Diester Industrie, 40% by KBBV, the European subsidiary of

Bunge Limited.28 Bunge is a global leader in the food industry and in the production of

vegetable oils.29 DII will develop its activities in Europe within the framework of the EU

directive promoting biofuel use. DI and DII’s biodiesel total output volume accounted for

24 http://diester.fr/25 Diester Industry, http://www.partenaires-diester.com:

Press Release, February 9, 2011. Diester Industrie develops in a less favorable environment. Press Release, October 15, 2010. Peugeot engages FNSEA for biofuels. Press Release, October 15, 2010a. Danone runs its trucks Diester. Press Release, October 14, 2010. Preserve the tax shelter biofuels. Press Release, May 24, 2010. Champs Elysees giant model of the firm France. Press Release, September 7, 2009. Diester closely to environmental challenges. Press Release, January 19, 2009. An agreement signed by DIESTER INDUSTRY for the acquisition

of Belgian OLEON, http://www.prolea.com/

43

2.1 million tonnes in 2011. This is combined biodiesel output produced across 7 sites in

France and 6 in Europe with total sales of 2.69 billion euros in 2011 which describes the

company as strongly profitable (EurObserv’er, 2011). The French sites are located in

Grand-Couronne, Venette, Le Mériot, Bassens, Sète, Montoir-de-Bretagne, and Cappelle-

la-Grande. The other European sites are Marl (Germany), Mannheim (Germany), Livorno

(Italy), Porto Corsini (Italy), Bruck an der Leitha (Austria), and Ertvelde (Belgium)30. DI

generates one third of its turnover of 2.3 billion Euro outside their home country.

Compared to a fossil product, Diester biodiesel reduces emissions of greenhouse gas

from 59% to 73% depending on the oils used, mainly rapeseed and sunflower, according to

the Agency for the Environment and Energy Management (ADEME) and 5 million tonnes

of CO2 were saved by the substitution of diesel by Diester in France in 2010. In this way,

biodiesel Diester surpasses the thresholds set by the EU directive on renewable energy

(February 9, 2011). Moreover, the produced Diester biodiesel complies with European

specification EN 14214 (Focus on Catalysts, 2004).

Internationalization process

According to Diester Industie, the creation of the joint venture, DII, is a step ahead to

satisfy the growing need for biofuels in Europe. In their internationalization process they

take into account the following important factors that could affect their business and

financial performance: their ability to complete, integrate and benefit from acquisitions,

divestitures, joint ventures and strategic alliances; change in the estimated demand for the

commodities and other products that they sell; industry conditions, including the cyclicality

of the agribusiness industry and unpredictability of the weather; agricultural, economic,

business, competitive and regulatory factors affecting their business in general31. An

example was the harsh competition from cheap Argentine and Indonesian imports that

influenced negatively DI financial results. DII experienced drop of 21% in production

volumes in 2011 since they suffered competition from animal fat methyl esters (AFME)

and waste oil methyl esters (WOME) which companies preferred rather than plant oil esters

(Sofiprotéol, 2011).

DII has the subsidiaries NAVAOL Italy, NAVAOL Austria, Mannheim Biofuel in

Germany, and 50% ownership of New Energy West in Germany and OLEON, Belgium32.

44

Romanian Expur is a subsidiary of Sofiproteol, but part of Expur activities is biodiesel

production. In 2011, Diester Industrie and Diester Industrie International complied with the

sustainability requirements imposed by the Energy Renewable European Directive. The

seven French sites and six European sites for biodiesel production were certified according

to the 2BSvs (Biomass, Biofuels, Sustainability Voluntary Scheme) in France and the ISCC

(International Sustainability & Carbon Certification) scheme in Germany (Sofiprotéol,

2011). Diester Industrie is commited to sustainable development. They site their plants

close to petroleum refineries so deliveries can be achieved by water or pipeline (ibid).

DII build in 2006 a new biodiesel plant next to Bunge’s existing facility in

Mannheim, Germany. The strategy of DII was to expand the capacity depending on the

market conditions.33 The Mannheim Bio Fuel Ltd. is a subsidiary of International Diester

Industrie SAS.34 Moreover, the European Commission approved the acquisition of

Mannheim Bio Fuel (MBF, Germany) and Novaol Austria by Diester Industrie

International.35

In 2008, Diester Industrie acquired Oleon Holding NV, a leading European

oleochemical company, in Belgium. A glycerine refining unit of 30.000 tons was built at

the Compiègne site of Diester Industrie. Glycerine is an important by-product of biodiesel

production.36 With this acquisition, the group Sofiprotéol strengthens its position in the

field of plant chemistry in which it is already present with its subsidiary Novance (owned

by Diester Industrie) based in Venette. This confirms the group strategy of developing

sustainable solutions from biomass, protecting the environment and fighting climate

change, while supplying food for humans and animals with priority (January 19, 2009).

33 http://www.greencarcongress.com/2005/12/diester_industr.html34 http://www.mannheimbiofuel.com/35 http://www.europolitics.info/biodiesel-merger-cleared-art346881-1.html26 http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=552372927 http://www.aquafuels.eu/consortium/49-consortium-members.html28 http://www.greencarcongress.com/2005/12/diester_industr.html29 http://www.europolitics.info/biodiesel-merger-cleared-art346881-1.html30 www.sofiproteol.com/en/diester-industrie31 http://phx.corporate-ir.net/phoenix.zhtml?c=130024&p=irol-

newsroomArticle_Print&ID=764232&highlight=32 http://www.navaol.it/cms/gruppo/mission.html

45

Moreover, Oleon and Novance operate on 5 production sites in France, Germany, two

plants in Belgium, and Norway. They also own a network of 8 sales offices spread over 3

continents37.

Novaol Italy, a leader in the production and development of biodiesel, was founded

in 1991 and in 2001 it became subsidiary of Bunge and later was joined by DII. There are

two plants there, one in Livorno and one in Porto Corsini, Ravenna38.

Technip, a technological company, has a turnkey contract for a 160,000 ton-per-

year biofuel production unit (CMR, 2004) with Diester Industrie for a new biodiesel unit,

based on the Axens process.39 French technology company, Axens, provided its Esterfip-H

biodiesel process, which offered significant benefits, to compatriot firm, Diester Industrie.

The new plant was built in Sète, France in 2005 (Gordon, 2004). The plant, reportedly the

first of a kind, uses heterogeneous catalyst technology.

Sofiprotéol acquired the Romanian subsidiary of Alimenta society Expur SA that

specializes in the processing and development of rapeseed and sunflower for animal feed,

refined oils and packaged for human consumption, and, since 2009, into biodiesel. (Press

Release, April 29, 2010). Expur has 2 industrial plants, in Slobozia and Urziceni, and 6

oilseed collection sites in the fertile Danube region, which provides a strategic location for

biodiesel production in Eastern Europe. Diester Industrie has an objective to maintain

global leadership in biodiesel production.40

Business Network41

The partnership Association of Diester is called “Diester 30% Partners” and it has

objectives to exchange information with its users, to promote the technical, economic and

environmental benefits with the optimal incorporation rate of 30% in diesel, and to

establish and sustain a dialogue between industrial partners (manufacturers, suppliers,

distribution oil), biodiesel users and public authorities in order to optimize the technical,

financial and economic use of Diester 30%. Some of the biggest partners of their

association are car manufacturers and oil companies.

PSA (Peugeot-Citroën) developed car engines that can use higher levels of biofuel

mixture. “Diester 30% Partners” engaged with the National Federation of Farmers' Unions

(FNSEA) to collaborate together on the development of biofuels to meet the objectives of

46

the EU directive on renewable energy. PSA already ensured that all diesel engines are

compatible with fuels containing up to 30% biodiesel (October 15, 2010).

Danone France Fresh Products (DPFF), who collects one billion liters of milk per

year, has joined "Diester Partners". Integrating the objective of Diester Partners, DPFF runs

28 trucks on Diester biodiesel 30% of total fleet of 68 trucks on the territory of France

(October 15, 2010a).

Diester Industrie has also partnership with BP, a British multinational oil and gas

company, since 2007 and BP intends to strengthen this partnership because the stakes will

be even more important in the future in the field of biofuels. Diester Industrie’s partnership

continues with Total, an oil group. Total began certification of biofuel chains. The French

oil group hopes that automakers will further strengthen in their use of biofuels. Peugeot and

Diester exist since 1997 (September 7, 2009). Moreover Diester Industrie organizes

agricultural events where farmers also contribute to the initiatives for energy independence

of France (May 24, 2010).

Diester Industrie Partnership association has more than sixty domestic partners (see

Table 9. Partners of Diester 30% Partners in the appendix). The partners can be described

as both types with community or enterprise roles. The community members are

municipalities, cities, general councils, and the state. The enterprise members are urban

public transport networks, transport networks of regular school, companies related to

construction activities and businesses related to agriculture42.

5.2. Biopetrol Industries43 The information is quoted from press releases and facts provided at the official website of

the company.

Founded in 2004, BIOPETROL INDUSTRIES AG is a Swiss company headquartered

currently in Baar, Switzerland. Their business is the manufacture and distribution of

biodiesel, produced from rapeseed, and pharmaceutical grade glycerol from vegetable oil.

Until 2011, the company had seven wholly owned subsidiaries: Biopetrol Schwarzheide

GmbH (Germany), Biopetrol Rostock GmbH (Germany), Biopetrol Rotterdam BV (the

47

Netherlands), Biopetrol Pernis BV (The Netherlands), Biopetrol The Netherlands BV,

Biotpetrol Marketing BV and Biopetrol Finance BV (see in the appendix Table 10.

Biopetrol Industries AG Structure).44 The Company has one production facility in Rostock,

and had one in Schwarzheide, Germany, and still has two in Rotterdam, the Netherlands.

Biopetrol Industries AG outsourced their financial and marketing operations to the

Netherlands. The biodiesel capacity of the plant in Schwarzheide was 150,000 tonnes per

year and in Rostock is 200,000 tonnes per year. In the Netherlands the biodiesel plants

capacity is 650,000 tonnes per year.

Biopetrol Industries AG aims to provide supreme quality products and have several

activities to ensure quality control. Assessment of suppliers is one of them and that is why

rapeseed is supplied by selected oil mills that are certified. Another quality control activity

is during the transesterification process of rapeseed and liquid catalysts, when biodiesel and

crude glycerol (a by-product) are produced, the biodiesel is washed in order to meet the

requirements of the EN 14214 standard of the EU. There is quality control of incoming and

outgoing goods, which is checked by sample and has to comply with the stringent quality

requirements of the Working Group for the Quality Management of Biodiesel (AGQM) and

the current standard EN 14214 as well. Biopetrol Industries are certified by ISCC for

International Sustainability & Carbon.

Internationalization process

Moreover some political decisions in regards to energy policies damaged the whole

biodiesel industry. One of those political debates over the biofuel quota delayed the

introduction of B7 by months that led to a situation where buyers in the market only accept

short term contracts or insist on contractual clauses, which make it impossible for producers

to plan purchase of materials. In addition to this the market for pure biodiesel (B100)

completely collapsed. Biodiesel industry suffered of severe competition from the fallen

prices of diesel. Then, the only possible way for biodiesel to remain competitive is trough

tax breaks.45

48

Although, the company achieved strong sales revenue increase from 127 million

EUR in 2009 to 616 million EUR in 201146, Biopetrol Industries AG experienced net loss

of EUR 61 million in the first half of 2012 compared to a net loss of EUR 15.8 million a

year ago. Aiming to strengthen the company’s financial position, Biopetrol announced the

launch of a restructuring of its balance sheet. The company discussed constantly

agreements with creditors.47

The turning point for Biopetrol Indutries AG came with the overcapacity in the

European biodiesel market in 2010 that led to pressure on margins and low utilization rates

across the industry. In these unfavorable market conditions, Biopetrol closed down its

production plant in Germany a year later. Due to lack of sea links to customers, the

Schwarzheide plant lacked the opportunity to seek new potential customers beyond its own

oversupplied region in contrast to the plants in Rotterdam and Rostock that are located

close to the sea and have an access to a wider pool of customers. During 2010

BIOPETROL took a number of other actions to further reach cost efficiency and remain

competitive. They also moved their commercial activities from Switzerland to Rotterdam,

the main hub of the European biodiesel industry.48 Despite the unfavourable market

conditions, operational performance showed significant signs of improvement with the

utilization rate of operating plants in Rotterdam and Germany increasing in the second half

of 2011. Company’s survival strategy in this challenging environment is to improve

operational and financial performance.49

Biopetrol Industries AG signed an agreement to acquire Dutch Biodiesel BV in

2010 and as part of the transaction, BIOPETROL intended to transfer their current

operations from Dutch Biodiesel to existing BIOPETROL sites in Rotterdam. The aim of

these actions was to create opportunities for improved logistics and operational synergies,

providing enhanced services to customers.50 A further increase in capacity in Rotterdam

was considered, as there was growth through acquisitions and the broadening of the product

range could include more of the by-product glycerine. Rotterdam is a good location for

BIOPETROL, placing them in the largest European refinery centre and very close to their

major customers from the oil industry.

Biopetrol Industries AG has unsustainable levels of debt and are therefore seeking

to improve the finances of the company by initiating a restructuring of our balance sheet

49

and engaging with their main creditors regarding the financial situation.51 BIOPETROL

succeed to engage in more favourable loan terms with its majority shareholder in the last

years. The company’s strategy is to continue to explore opportunities to strengthen its

balance sheet, including diversifying its financing providers, where possible.52

Business Network

Biopetrol Industries AG is an established partner of the oil industry, traders and fleet

operators and they follow a strategy of an international supplier of high-quality biodiesel in

the EU. The shareholders of the company are Glencore with 60.3%, Agros Group with

17.8% and there is free float of shares of 21.9%. 53 Glencore is one of the world's largest

suppliers of commodities and raw materials to industrial consumers.54 Argos Oil, founded

in 1984, has developed into a major market player through autonomous growth and

acquisitions to become one of the largest independent oil companies in North-West Europe

trading fuels and lubricants.55 Part of the BIOPETROL free float shares are held by the

Klink family and the management who are institutional investors.56

Especially strong presence the company holds in Germany where also the national

government and leading German politicians support domestic production of biodiesel57 In

2006 BIOPETROL INDUSTRIES signed a long-term agreement with the tank storage

company Royal Vopak. Royal Vopak is the world's largest independent tank storage

company and serves 73 terminals in 29 countries with a storage capacity of over 20 million

cubic meters.58

5.3. Abengoa Bioenergie59 The information is quoted from press releases and facts provided at the official website of

the company.

Abengoa Bioenergy is the major European biofuel producer and one of the leading

producers in the United States and Brazil. 60 The company produces bioethanol from 1st

generation (grains, sugar cane) and 2nd generation (agricultural waste) and company’s

activities can be described as procurement of raw materials, production and marketing of

bioethanol and its co-products DGS (from grain) and sugar (from sugar cane). Abengoa

50

Bioenergy aims to establish a leading position in the biofuel industry and develop

sustainable solutions for the transport sector and chemical bioproducts from renewable raw

materials.61 The company has 7 bioethanol plants in the EU, one of them in construction,

and a biodiesel plant. Three of the bioethanol plants are in Spain, where there is also the

only biodiesel plant that Abengoa have in the EU, one bioethanol plant in France, one in the

Netherlands, one in Germany, and one in construction in the UK (see fig. 7 Abengoa

Bioenergy’s Plants in the EU in the Appendix).

Abengoa’s biofuels are certified under the scheme RBSA, which is applicable at

global level, approved as well by the European Commision and it certifies sustainable fuels

and reduction in GHG emissions. Results, in regards sustainability can be seen in the

recognition of the company as Sustainable Bioethanol Award for Producer Company in

2010 for its greatest sustainability benefits as measured by GHG savings, environmental

impact and further societal benefits of the operations or technology.62

Internationalization process

Abengoa Subsidiaries can be summarized as it follows:

Ecocarburantes Españoles Owned by Abengoa Bioenergía S.A. (95%) and IDAE (5%).

Bioetanol Galicia Fully owned by Abengoa Bioenergía S.A. (100%).

Biocarburantes Castilla y León Fully owned by Abengoa Bioenergía S.A.

Abengoa Bioenergy France S.A. Owned by Abengoa Bioenergía S.A. (69%) and Oceol

(31%). Oceol is an association of the main agricultural cooperatives and industries of the

region. This plant produces bioehtanol from corn.63

Abengoa Bioenergy Netherlands Fully owned (100%) by Abengoa Bioenergía S.A. This

plant produces bioethanol from corn.

Lignocellulosic Biomass Plant Fully owned (100%) by Abengoa Bioenergía S.A.

The company also has biodiesel plant, Abengoa Bioenergía San Roque, in Cádiz, Spain.

It is fully owned (100%) by Abengoa Bioenergía S.A. In 2005 this plant started as an

agreement between Abengoa Bionergía and CEPSA (an energy company with strong

presence in Spain and international emerging activities). The manufacturing process will be

51

carried out from crude vegetable oils. The location of the plant is strategic since the close

position of the refinery aims at reducing logistic costs.64

In 2003 Abengoa Bioenergía signed a contract with the Swedish company Svenska

Shell to supply bioethanol.65 The deal was driven by the growing demand in Sweden and

lack of local production. In the same year, Abengoa Bioenergy was awarded, in partnership

with the German distiller KWST, a contract to supply bioethanol to railcars at PCK, in

Germany. PCK is a Joint Venture established by BP, Shell, and AET66. Abengoa

Bioenergy's strategy was focused on entering into long term supply agreements for 2004

and further years, since they perceive this as an opportunity for end-users and market

expansion through the development of the infrastructures required to introduce the

bioethanol. Since 2004, Abengoa Bioenergy has it own R&D subsidiary that was signed as

a strategic alliance with SunOpta and allowed Abengoa to convert agricultural residues into

ethanol, products of animal feed and biochemical products.

In 2006, the first contacts with German producers took place when the company

directly shipped grains to Germany from Spain and Abengoa were noticed internationally.

In the same year the subsidiary in France, Abengoa Industrie, signed contracts for direct

blending with major chains of hypermarkets in France; Carfuel (Group Carrefour), SCA

Pétrole et Dérivés (hypermarket Intermarché), Distridyn (hypermarkets Casino and Cora),

Petrovex (Group Auchan) and Siplec (hypermarket E. Leclerc).67

In 2007 Abengoa Bioenergy lead the project I+DEA, (Research and Development

of Ethanol for Automotive Applications), developed by a wide consortium of private

companies and public investigation organizations to generate an important impulse for

agrarian, biofuels, automotive and biotechnology industries in Spain.68 The same year,

Abengoa signed a bioethanol supply agreement with the independent petroleum product

distributor Petrovex, a company with great gasoline network distribution in France.69

Abengoa Bioenergy also signed a bioethanol supply agreement with Argos Oil for the

distribution of E5 and E85 in The Netherlands. Argos Oil is one of the largest independent

oil companies in The Netherlands, with a network of around 75 petrol stations countrywide.

Moreover in 2007, there was a decreased production of cereals due to climate factors which

put pressure on the costs. However, Abengoa Bioenergy enabled partial mitigation of the

52

impact on raw material cost increase due to its geographical diversification with presence in

the USA, Europe and Brazil, flexibility in the use of different raw materials on their

production facilities, together with long term contracts.70

In 2011 Abengoa Bioenergy had the aim to become leader in the distribution of

biodethanol in the Mediterranean region under sales contracts signed with oil and

petrochemical companies in Spain, Italy, and the south of France, and even oil operators in

Spain.71

In 2010, Abengoa also facilitated positive arbitrage for exporting bioethanol from

Europe to Brazil and sold their sustainable European products to cover Brazil’s growing

demand when the local offer was insufficient.72 The same year the company already had

thirty gas stations where they could supply E85.

With these supplies, Abengoa is expanding its activities in Europe while increasing

and diversifying customers between oil companies and refineries throughout Europe, and in

this way penetrating existing and new emerging markets opportunities. The company shows

intention of expanding to other European countries like Poland, Hungary and Italy.73

Business Network

Abengoa Bioenergy partnerships can be seen in Table 11. Abengoa Bioenergy Partnerships

in the Appendix.

Biocarburantes Castilla y León have signed a contract with the European Union to

develop an R&D project under the Fifth Framework Programme. The main outcome of the

project will be the first lignocellulosic plant in the EU to start operation on a commercial

basis. The application of the lignocellulosic materials as well as the enzymes to convert

them will be the subject of intense research and development. The project brings together

partners from the research community and industrial companies, with a construction

company as a major subcontractor, to create an integrated fuel bioethanol chain.

Biocarburantes Castilla y León S.A (Spain) will be responsible for project co-ordination,

plant design, engineering, construction and operation, technical and economic evaluation,

and socio-economic study. Centro de Investigaciones Energéticas, Medioambientales y

Tecnológicas, Ciemat (Spain) will be responsible for determining process conditions for the

process of biomass to ethanol in laboratory. University of Lund (Sweden) will assess the

53

bioethanol process conceptual design from biomass. Novozymes A/S (Denmark) will be

responsible for production of enzyme for bioethanol process from biomass. Ecoagricola

S.A.(Spain) will be responsible for the suitable supply of raw materials to sustain the

bioethanol plant. Repsol Petróleo S.A. (Spain) will provide laboratory studies and vehicle

tests of ethanol-petrol mixtures for market distribution.74

Abengoa Bioenergy Corporation has identified BP (British Petroleum) as a

company with which they wish to strengthen their relationship because they are a major

international company, blending large volumes of ethanol and have innovative pricing

structures.75

Abengoa Bioenergy also entered into a cooperation agreements with Ford Spain and

General Motors Spain in order to develop the Ford vehicle market with flexible engines

("FFV") in Spain that use biofuel "Bioethanol E85" manufactured by Abengoa Bioenergy.76

In 2010 two former European bioethanol associations, UEPA and eBIO, merged into

ePURE which is an industry association governed by bioethanol producers. the scope of

ePURE's work covers all uses of bioethanol, including beverages and industrial applications

as well as fuel. In this coalition Abengoa Bioenergy was appointed to serve in the first

Executive Committee of ePURE, along with the following biofuel companies: Tereos

(France); CropEnergies (Germany), Cristal Union (France), Ensus (UK), Royal Nedalco

(The Netherlands) Lantmannen Agroetanol (Sweden), Alco Biofuel (Belgium), Enviral

(Czech Republic) and Inbicon (Denmark).77

5.4. Crop Energies78 The information is quoted from press releases and facts provided at the official website of

the company.

Founded in Mannheim in 2006, Crop Energies have production facilities in Germany,

Belgium, and France as well as trading offices in the USA and Brazil. They are one of the

leading European manufacturers of sustainably produced bioethanol and manufacture their

bioethanol from cereals and sugar beet. Crop Energies produces approximately 700,000

54

cubic meters of bioethanol per year that mainly replace petrol and reduce CO2 emissions by

up to 70 percent.

Internationalization process

Crop Energies subsidiary in Belgium, BioWanze S.A. in Wanze, has a leading market

position in Belgium. It is also seated in place with favourable conditions for export to

Antwerp and Rotterdam due to the inland and deep-sea waterways.

In 2007 The R&D department of Crop Energies AG, Mannheim and several

institutes of the Fraunhofer-Society cooperated to promote the usage of bioethanol in fuel

cells for power supply and heating since they have applications in portable appliances such

as mobile phones, on-board energy supply of trucks, busses or automobiles and even house

energy supply. As one of the biggest European bioethanol producers, the Crop Energies AG

will actively participate in the further development of bioethanol fuel cells. To this effect, a

research cooperation with the Südzucker AG and several institutes of the Fraunhofer

Society which are the Fraunhofer-Team Direct-Ethanol-Fuel-Cell, the Fraunhofer Institute

for Solar Energy Systems (ISE) and the Fraunhofer Institute for Ceramic Technologies and

Systems (IKTS) has been started.

Crop Energies AG, moreover supports filling stations who convert pumps to E85 to

promote the extension of the E85 filling station network in Germany.79 CropEnergies AG

had their campaign in which they supported modifications of up to 50 filling stations in

Germany, which are interested in selling Crop Energies AG "CropPower85" bioethanol.

Crop Energies AG signed an agreement for the acquisition of French alcohol

producer Ryssen Alcools S.A.S in 2008. Ryssen Alcools specialized in the drying of raw

alcohol for the fuel sector and has favourable logistical position in the port of Dunkirk.

From there the refineries in the ARA (Amsterdam-Rotterdam-Antwerp) area can be

supplied quickly and at low cost. The site also has facilities for loading and unloading rail

and road tankers80.

In 2008 CropEnergies AG, Mannheim, completed the expansion of the capacity of

their bioethanol plant in Zeitz, Saxony-Anhalt, from 100,000 m³ to 360,000 m³.81

Bioethanol produced at the plants of Crop Energies AG, Mannheim, in Zeitz

(Saxony-Anhalt) and Wanze (Belgium) conforms to all the requirements of the German

55

Biofuel Sustainability Regulation. In this way, Crop Energies can prove that bioethanol is

produced sustainably at all plants.82 As a result, the bioethanol produced there can be used

by the mineral oil industry to meet its mandatory blending obligations with sustainable

bioethanol.83

Crop Energies experienced failure of the launch of E10 due to the uncertainty of the

customers. Super E10 (petrol blended 10% bioethanol), which has been introduced at

German petrol stations, is a petrol standardized according to DIN 51626-1. The Federal

Ministry of Economics and Technology proceeded with the introduction of E10 in

Germany with the support of organisations representing the automotive, fuel and

agricultural sector as well as the consumer side.84

Business Network

Crop Energies Partners can be found in Table 12 in the Appendix.

Crop Energies AG, Mannheim, one of the leading bioethanol producers in Europe

that entered a fuel and technology partnership with the Volvo tuning specialist HEICO

SPORTIV to supply them with high-performance E85 fuel for endurance races.85 Crop

Energies also have partnerships with Audi and Dart Races. Crop Energies are also a

member of ePURE which is the European trade association that promotes renewable

ethanol.

The results from the four cases can be summarized in Table 13. Summary of Results in the

Appendix.

6. Discussion

The present section serves as a link between the theoretical background from section 2 with

the empirical results from section 5. The four cases of the biofuel producers in the EU will

be discussed in the light of the employed theories.

Entry Modes and Business Network

The four cases show a repeated pattern where all biofuel producers are part of huge agro-

food companies. It can be observed that biofuel producers in the EU can be owned by agro-

56

food companies (Diester Industry is owned by Sofiproteol), or operate through a joint

venture with, again, a food company (DII). There can also be an equity alliance of a

supplier of raw materials, an oil company and institutional investors (Biopetrol Industries

AG) or close cooperation with food companies (Abengoa Industrie and Crop Energies).

The reason why biofuel producers are owned by agro-companies is because those

companies specialize in vegetable oil production, from which not only food is produced but

biofuels, and at the same time renewable sources of energy are produced. In this ways,

biofuel production for them is another product in their portfolio. With biodiesel and

bioethanol production, these plants oil producers could achieve economies of scope,

diversifying their main portfolio of vegetable oils. Moreover, the by-products from the

processing of biodiesel and bioethanol are supplied in the animal food or pharmaceutical

industry.

In regards to the preferred modes of internationalization on the biofuel market in the

EU, the cases show that producers of renewable fuels mainly prefer international expansion

through subsidiaries and fewer strategic alliances or contractual entry modes.

Companies prefer to acquire already existing producers (the local French company,

Ryssen Alcools, acquired by Crop Energies) or raw material suppliers in the target markets

instead of expanding through intermediaries as local agents. Expansion through acquiring

existing companies in new markets can be observed in all four cases of biofuel producers in

the EU. According to the institutional-economic theory, a company will seek cost-efficient

way to perform their expansion activities and this is when they minimize their transaction

costs. This could characterize the biofuel producers’ internationalization tendency as

internalization, own production. However, the cases do not provide sufficient information

on the reasons why companies prefer to acquire existing producers – do they want to

achieve cost efficiency or higher degree of control of international operations. Even in the

cases of strategic alliances, companies invest in majority stakes. This implies that

companies prefer high resource commitment to maintain desirable degree of control,

especially over production plants. However, it does not provide the reasons for this choice.

High resource commitment, moreover, means less flexibility. While in the cases of Diester

Industrie, Abengoa Bioenergy and Crop Energies subsidiaries are successful strategy,

Biopetrol Industries AG have experienced the negative side of the high resource

57

commitment entry mode. Due to overcapacity in the region in which Biopetrol’s subsidiary

Schwaheide was operating and lack of sea links to customers, the company had to close

down their operations there. This on its turn led to unstable financial situation, unstable

levels of debt and survival strategy of operational and financial restructuring.

As second preferred entry mode by the EU biofuel producers can be identified the

contractual mode, mainly with oil companies and distillers, who are key buyers. In

particular, turnkey contract could be signed for the delivery of innovative technological

processes, while long-term contracts with tank storage companies and suppliers are

desirable in the observed cases. The latter is a preferred mode due to plan of production and

avoiding overcapacities that endanger the financial situation of the company and their

business. As already mentioned, the most significant contract for a biofuel producer is with

big oil companies such as BP and Shell, with international fuel network and large capacity

for blending. This can be observed in the four cases. This is why companies identify this

relationship as significant for their operations and were willing to invest more time and

trust to strengthen it. Moreover, contractual modes served as initial entry in new countries

as Sweden, Germany and the Mediterranean region for Abengoa Industry. All of these

contracts have been with strategic significance for the company. In Sweden, Abengoa

Bioenergy still has contractual agreement with Shell, while in Germany, where they have

started with sales contracts, now they own production plants there. In the Mediterranean

region, Abengoa Bioenergy has chosen an entry strategy of sales contracts aiming to

develop strong future market position. Contractual agreements does not require high

resource commitment, however, the company has to decide the importance of the

relationship and the future investments they would take to expand their business through

the already established connections.

Contractual modes are flexible entry modes because a company does not dedicate

many resources to invest. In the case of Abengoa Bioenergy, with its sales contracts in a

target region, it can be observed that the company seeks opportunities to increase long-term

profits being at the same time risk averse. However, in this way the company can not gain

experience and market knowledge about the target market and overcome the liability of

outsidership. Furthermore, if a company is exceedingly risk averse, for example not willing

to develop existing contractual relationship, international operations may not proceed in the

58

long-term and this can be loss of opportunity for the company. In the case of the same

company, it can also be identified a pattern of exporting to neighboring countries

(Abengoa’s strategy in the Mediterranean region). This reminds of to the Learning

perspective where in the first stage of internationalization companies export to neighboring

countries or countries with great psychic distance. However, deterministic incremental

commitment to internationalization, going through every stage of the Learning Perspective

internationalization, does not exist in any of the discussed companies in the present paper.

It can be noticed that biofuel producers do not follow these phases and all of them expand

rapidly through acquisitions. None of the biofuel producers use intermediaries as entry

modes. And in three of the cases companies do not even export to new markets, but acquire

local companies. Such process reminds of the case of Born Global, where accelerated

internationalization does not aim profitability but spreading operations in number of

countries simultaneously, however, it could not be observed a pattern where the chosen

biofuel producers seek expansion from their inception or have a significant international

experience, except the case of Abengoa. Although, Abengoa’s main internationalization

strategies is through subsidiaries, it could be argued that they had a second strategy where

they were expanding in few new countries in the EU through sales contracts in their early

stages of existence, which could be due to their international experience in operation in

USA and Brazil.

Overall, biofuel producers first develop domestically, and their development is

mainly supported by the local governments, before they take an action to expand abroad

whether through contracts or acquisitions. Internationalization phase, in which companies

develop first in their home market and expand internationally afterwards in multiple

markets offering unique product, is similar to the first phase of internationalization in the

Strategic Competition strategy, where a company internationalizes to achieve economies of

scale. It must be noted that biodiesel and bioethanol production could be advantageous

from cost and GHG reduction perspective only if the crops are cultivated in accordance

with the land requirements by the EU. The second internationalization stage of the same

perspective is about achieving economies of scope which can be observed in the cases of

the biofuel producers in the EU. After they penetrate a certain market, for example the

cases of Diester Industrie, Crop Energies and Abengoa Bioenergy, who have strong market

59

shares in their home markets, biofuel producers launch new products with higher

percentage of biofuel mixture as the products Diester Biodiesel 30% (B30), Abengoa

Bioenergy Bioethanol E85 and Crop Energies E85. By now, these products have achieved

success in company’s home markets and the producers are lobbying to trade them in

foreign markets. These observed four cases, however, do not give additional information on

knowledge sharing systems from which it could be any conclusions made about global

coordination, the third phase of internationalization in the strategic competition perspective.

The biofuel producers’ strategies of consequently entering of countries and their

heavy resource commitment, both asset and financial investments, lead to the conclusion

that they follow market concentration expansion strategy. In the case of Abengoa

Bioenergy, there can be identified a pattern of market diversification because they enter

simultaneously new countries with contractual modes. Abengoa aims at becoming a leading

biofuel producer in the Mediterranean region where they now operate through contract

modes with exception of Spain where they have strong presence with several subsidiaries.

The partnerships of the companies can be analyzed in several ways. First, the most

important, is the support of the national governments since they boost biofuel production

and promote development. These are the cases of Diester Industrie in France and Biopetrol

Industries AG as well as Crop Energies in Germany, where both governments support

domestic biofuel production as inseparable part of the sustainable development of the

countries. As part of the renewable energy directive countries have to reach 10%

percentage of renewable energy in the transport sector by 2020. Some of the individual

Member States have to achieve more than this 10 percent stated in the directive, for

instance for Germany this is 18% and for France 23%. This could be an explanation why

some of the local governments support local production. In France, Diester industry has the

support of more than 60 local communities and enterprises where biodiesel is blended up to

30% and in Germany the local government supports domestic biofuel production.

Second, Companies have strong partnerships with research centers, laboratories and

biotechnology companies which can bring them not only new technologies and processes to

improve efficiency but also competitive advantage in the development of next generations

biofuels since the EU aims to change tax breaks in regards to 1st generation biofuels and

boost next generation biofuel production. Third, it can be observed some distinctive

60

characteristics to the bioethanol producers, Abengoa Bioenergy and Crop Energies that

have their own projects to promote infrastructure for E85. They also invest in key

partnerships with car manufacturer for the development of flexible engines supporting

higher mixture of bioethanol. Both bioethanol producers are united under the common EU

bioethanol producer association (ePURE).

Through their business networks, it can be observed how biofuel producers make

strategic connections with other organizations that have complementary resources. They

lobby with local governmental and non-governmental organisations, create coalitions with

research and technological centers to boost the development of next generation biofuels and

new technological processes. Biofuel producers analyze which relationships to develop

through long-term commitment, as one of the relationships that biofuel producers explicitly

state that they are most willing to develop is with big oil companies since they use biofuels

as complementary resources to their fuel products. This leads to the idea that biofuels from

first generations are mainly used as complements to the fossil fuels not as substitutes.

Moreover, companies create strong partnerships with car manufacturers. The strategy of

creating relationship to acquire access to particular resources in different regions is in line

with the Network model. This is also in line with the systems approach since biofuel

producers create synergies through their partnerships.

Certification

All of the four companies comply with the EU Renewable Energy directive (EN 14214),

which is the mandatory requirements set by the EU. Moreover, the biodiesel producers

comply not only with the sustainability criteria in the directive but also with other

certification schemes such as the ISCC (International Sustainability & Carbon

Certification). Interesting to emphasize is that Diester biodiesel not only complies with this

directive but exceeds by far the thresholds and the company plays significant part in the

sustainable development of whole France with great reduction of GHG emission in 2010.

Moreover, all Diester production plants are certified according to the 2BSvs (Biomass,

Biofuels, Sustainability Voluntary Scheme) in France. Moreover, Biopetrol Industries AG

main strategy is the provision of high-quality product and to achieve their objective they

61

ensure quality through certified suppliers, quality control of the production process, and

control of incoming and outgoing goods.

Abengoa’s biofuels are certified under the scheme RBSA, which is applicable at

global level, approved as well by the European Commission and it certifies sustainable

fuels and reduction in GHG emissions. This global certification implies that Abengoa

Bioenergy aims to maintain global leadership of high-qualitative bioethanol worldwide.

Crop Energies bioethanol is as well a certified sustainable product that reduces CO2

emissions by up to 70 percent. The bioethanol of all their plants in Germany, the

Netherlands and Belgium not only complies with the EU standard but also it conforms to

all the requirements of the German Biofuel Sustainability Regulation (REDcert). Moreover

their petrol blended 10% bioethanol (E10), which has been introduced at German petrol

stations, is petrol standardized according to DIN 51626-1.

It can be observed that companies strictly comply with certification and even

voluntary ensure further quality of the products and the processes. Another conclusion that

can be made in regards to Porter’s Generic strategies is that from the strategic competition

perspective it seems obvious that biofuel producers follow strategy of cost leadership since

they provide not only sustainable products but a main business idea is to offer cheaper

alternative to fossil fuels.

Political Situation, Competition and Supplier/Buyer Related Uncertainties

In section 4, Market Analysis, it was argued that the political incentives support biofuel

production in the EU, in general, through tax breaks, and the EU Renewable Energy

directive. It was slightly discussed the negative side of the political issues, however, in the

chosen cases in the present paper the lack political incentive in time had seriously negative

impacts on the business. To start with the example of Diester Industrie when their financial

results were influenced negatively due to cheap Argentine and Indonesian imports. Another

loss for the same company was their drop in production due to buyer’s preference of waste

oils produced by competitors rather than plant oils produced by Diester.

In the case of Biopetrol, the introduction of B7 was delayed due to political debates

that damaged the relationships with buyers, who in this case preferred only short term

contracts and it was impossible for biofuel producers to plan their production. Moreover,

62

the pure biodiesel market (B100) collapsed in 2011 due to tax increase. The company also

suffered competition from the fallen prices of biodiesel. These unfavorable situations for

Biopetrol and the liquidation of one of their German plants gradually added to the current

debt situation in which there are now.

Moreover, in 2007 there was a decreased production of cereals due to climate

factors which put pressure on the costs, however, Abengoa Bioenergía enabled partial

mitigation of the impact on raw material cost increase. This was due to their geographical

diversification with presence in the USA, Europe and now Brazil, flexibility in the use of

different raw materials on their production facilities, together with long term contracts.

Crop Energies experienced failure of the launch of E10 due to the uncertainty of the

customers. Moreover, key part of the introduction of higher biofuel mixtures was identified

as the acceptance from the customers. This was the lesson for Crop Energies who had to

inform their customers about the advantage of these products before launching them.

However, here the national government intervened to support the initiative of the German

bioehtanol producer to reach the customers. The Federal Ministry of Economics and

Technology proceeded later with the introduction of E10 in Germany with the support of

organisations representing the automotive, fuel and agricultural sector as well as the

consumer side. These examples show that the biofuel industry in the EU is greatly

dependent on political decisions and that they can not only influence positively but damage.

The government, more precisely the EU, has the power to control and even destroy the

biofuel industry.

With all this challenges the only way to remain competitive for biodiesel producers

is the tax breaks, vertical integration, and diversification of risk. Although, it is argued that

tax breaks to first generation biofuels will be only temporary and the future incentives of

the European Commission will be related to boost next generation’s biofuel production. On

one side, even though some of the discussed biofuel traders sustain production plants that

can switch to production of advanced biofuels, on the other side, such step will require to

great extend new technology processes and the investment from many other producers and

companies. Diester Industry and Abengoa Bioenergy, both leaders in the biodiesel and

bioethanol production in the EU, diversify their risk through business operations in many

countries. Other companies, such as Biopetrol Industries AG diversify their risk through

63

different financial investors. As last, vertical integration can overcome the supplier threat

and it could be not so far difficult solution for biofuel producers since crop growing is not a

specialized process.

Strategic Location

Diester strategy was the acquisition of already existing oleochemical company as they did

in Germany, Austria, Italy, and Belgium. The acquired companies also have their own

network and subsidiaries around Europe and offices overseas which expands the reach of

DI. Moreover, the strategy of DI was to expand the capacity depending on the market

conditions and in this way avoid overcapacity, a bitter lesson in Biopetrol’s case. The

overcapacity, not only on the market, but in the region of the one of the German Biopetrol’s

plant and the lack of sea links there brought the liquidation of the subsidiary and led to

unstable levels of debt and survival strategy of operational and financial restructuring and

dependence on creditors. Biopetrol Industries AG learned their lesson and moved

production in Rotterdam, the largest European refinery centre, where the location was

strategic, close to major customers and clients and more sea links. Something, that Diester

have been already doing, choosing locations close to petroleum refineries where deliveries

can be achieved by water or pipelines to other strategic regions with major customers.

Crop Energies also followed similar strategies. They acquired already existing

companies and seated their plants in place with favourable conditions for low-cost export to

Antwerp and Rotterdam due to the inland and deep-sea waterways.

It can be concluded that location close to customers and available low-cost structure

to supply quickly are a must for survival in this industry and is also in line with the

Strategic Competition Perspective suggesting that a company can achieve competitive

advantage through locating strategically their production in regions where they have closer

access to customers and suppliers. Acquiring already existing companies in foreign markets

seems preferable and successful strategy for international expansion.

Market Position

Abengoa Bioenergy is the European bioethanol leader of 1st and 2nd generation production

and a leading producer in the USA and Brazil. Abengoa Bioenergy's strategy since 2004

64

was focused on entering into long term supply agreements, because they perceived this as

an opportunity for end-users and market expansion through the development of the

infrastructures required to introduce the bioethanol. They also invest in partnerships with

technological and R&D centers since they want to maintain leadership in 1st and 2nd

generation biofuels. Sales contracts to countries in which they do not have any other mode

of presence are strategy to be noticed internationally. They also focus on higher bioethanol

mixtures. Crop Energies acquired companies with leading market positions, as for instance

the case with their subsidiary in Belgium. Crop Energies AG will actively participate in the

further development of bioethanol fuel cells and filling stations to promote the extension of

the E85 filling station network in Germany.

Diester Industry and Abengoa Bioenergy can be described as both, the leaders in

biodiesel and bioethanol production respectively. Their objectives are global leadership.

They maintain high degree of complicated network not only in the EU but also

internationally. Biopetrol Industries AG and Crop Energies can be described as some of the

leading companies in the market, the followers. They have strong presence in not more than

3 countries and uncertainties on the market can threat their business since they do not have

geographical diversification of the risk. This is a reason for them to expand their production

capacity based on market conditions and to search possible opportunities to diversify risk.

In summary, it can be concluded that the main internationalization entry mode of biofuel

producers in the EU is through subsidiaries and as other less preferred entry modes can be

identified as joint ventures and contractual agreements. Biofuel producers are either owned

by agro-companies or cooperate closer with such businesses. In relation to their

partnerships and business relationships, biofuel producers show significant interest in

strengthening the connections with big oil companies. Other strategical cooperation that

they maintain are with R&D centers, laboratories, biotechnological companies and car

manufacturers to develop new products and introduce them to new and existing markets.

Also, a significant part of the network is with local governments. In regards to certification,

all of the biofuel producers comply with the EU directive and even with other certification

schemes since some of the companies operate outside the EU. The companies take actions

to ensure high-quality processes of production and products. The tax breaks are the most

65

essential government incentives, however, governments can also delay to react on time by

and influence negatively not only production but company’s financial situation and even

the whole market. For this reason, it can be concluded that the government has the key

power to control the biofuel industry. Location, close to customers, refineries or sea links,

is decisive for production plants. Overall, acquiring of already existing plant oil or alcohol

producers in new countries is the main strategy of the biofuel producers in the EU.

7. Elaboration on Hypotheses

The purpose of the present study was to provide answers to the proposed problem

statement How biofuel producers internationalize in the EU. For this reason, theories were

employed to allow a prior understanding of the macro-environment and the internalization

behaviour of a company. In this section it is discussed the extent to which these theories

were confirmed or not.

First, it was identified that biofuel producers mainly internationalize through acquiring

existing companies, which become their subsidiaries. From this, it follows that biofuel

producers could prefer to maintain higher degree of control of their operations abroad. It

can be argued that they also internalize their activities to minimize their transaction costs.

However, there is not sufficient information from the cases to make conclusion about

these costs or control. This means that the following hypotheses can be formulated for

further testing:

H1: Biofuel producers internationalize through subsidiaries to maintain higher degree of

control over international operations.

H2: Biofuel producers internationalize through subsidiaries to achieve cost efficiency of

international operations.

Second, in this policy-driven market, the government has the power to decide the future of

the business, since biofuel production depends on tax breaks to remain competitive on the

66

market. This is why complying with certification and lobbying are necessary conditions

for a company to compete. This result confirms the institutional theory and the third

hypothesis can be formulated as:

H3: Government incentives are the most decisive factor for business in the biofuel market

in the EU.

A third important conclusion was that biofuel producers are most willing to develop long-

term relationships with big oil companies since biofuels are complements to fossil fuels.

This confirms the Network approach, where business relationships with companies with

complementary resources allow access of a company to external resources and allow both

parties to achieve synergies through their relationship. Since biofuels can be seen as

mainly complements not substitutes to fossil fuels, the fourth hypothesis can be

formulated as:

H4: Biofuel production depends on the strength of the business relationships of a biofuel

producer with companies with complementary resources such as oil companies and car

manufacturers.

An important part of the biofuel producer’s strategy was the location of the production

plants. They were placed near to customers, refineries or sea link where they could be

distributed quickly which confirms the strategic competition perspective. For these

reasons the fifth hypothesis can be formulated as:

H5: Strategic location of production plants is a competitive advantage.

The learning perspective was not confirmed in the four cases because none of the

discussed companies follow a deterministic process of internationalization. From this

follows that:

H6: Biofuel producers do not follow a deterministic process of internationalization.

67

The four cases, moreover, show that biofuel producers follow market concentration

expansion strategy since they expand in few markets through high resource commitment

modes. The last hypothesis can be formulated as:

H7: Biofuel producers internationalize through market concentration expansion strategy.

Overall, it can be concluded that partly most of the theories were confirmed with

exception of the Learning Perspective that was rejected.

8. Conclusion

In summary, what was done in the present paper aimed to provide understanding of the

internationalization process of producers in the emerging market of biofuels in the EU. The

present paper started with introducing the reasons why biofuels are necessary for society. In

the next section theoretical formulations gave explanation of the expected behaviour of

players on the market and producers expanding operations internationally. Methodology

was necessary to set framework of how data will be gathered and analysed, as well as

limitations of the research and validity of findings were clarified. In the market analysis the

power and connection between different market players were analysed and the conditions

for doing business were defined. Then four cases from the biofuel industry in the EU were

formulated and later discussed on the basis of the theoretical understanding provided

earlier.

The study concluded that biofuel producers prefer high-resource commitment entry

modes as subsidiaries and joint ventures. They follow market concentration expansion

strategy. Few can be the cases when they would prefer contractual modes to enter a new

market and this could be due to their international experience in other countries. The most

decisive factors for biofuel production in the EU are policy regulations and debates as well

as the competition from oil companies. A main threat is that since biofuels are policy

dependent, the EU could stop the subsidies. From their network relationship, the most

68

important connections were defined with oil companies and car manufacturers as well as

R&D centers. A suggestion for opportunity in more countries as a niche strategy for

biofuels from 1st generation could be bus fleets for public transport, truck operators, and

agricultural vehicles and furthermore, they are attractive options because they can maintain

higher mixtures of biofuels and even pure forms of it. In addition, the high octane number

of bioethanol allows the engine to achieve better performance and could be used not only

for the racing vehicles. Propositions for future research can investigate further the reason of

36 http://www.flex-news-food.com/console/PageViewer.aspx?page=2056037 www.sofiproteol.com/en/diester-industrie38 http://www.novaol.it/novaol/cms/gruppo/index.html39 http://business.highbeam.com/436407/article-1G1-148674784/technip-has-turnkey-contract-diester-

industrie-new40 http://www.novaol.it/novaol/cms/gruppo/mission.html41 http://www.partenaires-diester.fr/42 http://www.partenaires-diester.fr/catalogue/utilisateurs/4/43 http://www.biopetrol-ind.com/44 http://www.reuters.com/finance/stocks/companyProfile?symbol=B2I.DE45 http://www.e-energymarket.com/news/single-news/article/biopetrol-industries-ag-prepares-financial-

restructuring.html46 http://www.biopetrol-ind.com/ir_kennzahlen_e.htm47 http://renewables.seenews.com/news/biopetrol-industries-plunges-further-into-loss-in-h1-2012-30537748 http://www.wallstreet-online.de/nachricht/3125265-dgap-news-biopetrol-industries-ag-deutsch49 http://www.dgap.de/dgap/News/corporate/biopetrol-industries-strong-growth-sales-in/?

companyID=598&newsID=70969350 http://www.wallstreet-online.de/nachricht/3057885-dgap-news-biopetrol-industries-ag-deutsch52 http://www.biopetrol-ind.com/press_meldung_120327_e.htm51 www.biopetrol-ind.com/biopetrol_h1_12_e.pdf53 http://www.biopetrol-ind.com/ir_kurzportrait_e.htm54 http://www.e-energymarket.com/news/single-news/article/glencore-takes-over-biopetrol-industries-

biodiesel-plants.html55 http://www.dgap.de/dgap/News/?newsType=&companyID=598&newsID=65034156 http://www.biopetrol-ind.com/press_meldung_060427_e.htm57 http://www.biopetrol-ind.com/press_meldung_080509_e.htm58 http://www.biopetrol-ind.com/press_meldung_060310_e.htm59 www.abengoabioenergy.com60 http://www.abengoabioenergy.com/web/es/index.html

69

internationalization decisions by biofuel producers. It might also be interesting the

investments of first generation biofuel producers in advanced biofuels to be investigated

and how they develop business relationships with their partners.

The study has shown that since fossil fuels have finite nature and tendency of

increasing prices biofuels have the potential to give the world efficient and sustainable

energy. The new entrants in the industry must carefully choose their geographical locations

and technologies and establish the key relationships with buyers, suppliers and as well as

R&D associations. Moreover, vertical integration, though costly, can be a crucial step for

establishing in this emerging industry. By now, government regulation has helped boost

both demand and profitability in the industry and more similar incentives as subsidies,

61 www.abengoabioenergy.com/web/en/acerca_de/general/introduccion/areas_actividad62www.abengoabioenergy.com/web/en/prensa/noticias/historico/2010/bio_20100910_1.html63www.abengoabioenergy.com/web/en/prensa/noticias/historico/2005/20050614_noticias.html64www.abengoabioenergy.com/web/en/prensa/noticias/historico/2005/200512_noticias.html65 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2003/200309_noticias_3.html66 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2003/200312_noticias_2.html67 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2006/20060620_noticias.html68 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2007/20070215_noticias.html69 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2007/200705_noticias.html70 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2007/20070924_noticias.html71 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2011/20110601_2.html72 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2011/20110912_2.html73 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2006/20060309_noticias.html74 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2003/200309_noticias_7.html75 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2003/200310_noticias.html76 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2006/20060928_noticias.html77 http://www.abengoabioenergy.com/web/en/prensa/noticias/historico/2010/bio_20101222_4.html78 http://www.cropenergies.com/en/Home/79 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung__08.05.2007/80 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung_02.06.2008/81 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung_04.07.2008/82 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung_26_10_2010/83 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung_11_01_2011/84 http://www.cropenergies.com/en/Presse/Press_releases/Stellungnahme_08_03_2011/85 http://www.cropenergies.com/en/Presse/Press_releases/Pressemitteilung_25.03.2009/

70

import tariffs, or research grants must continue to stabilize the industry. However, if the

government support diminishes over time, this could negatively influence profits. Biofuel

companies must also lobby and build relationships with local government organizations

that regulate biofuels and the nongovernmental associations that influence public opinion. It

seems, however, that the fastest-growing field for biofuels is not in technology but in deals.

Even after years of scientific studies, political bargaining and heavy lobbying, however, the

European Commission proposed new rules aimed at discouraging the use of biofuels

71

derived from food crops, while at the same time boosting next generation biofuels, which

don't compete with food crops, even though they are still in development.86

86 http://online.wsj.com/article/SB10000872396390444734804578062603651891048.html

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UNIDO (United Nations Industrial Development Organization) 2011. Natworks for

Prosperity: Achieving Development Goals through Knowledge Sharing. Leuven Centre for

Global Governance Studies.

Unilever 2007, “Promoting Sustainable Biofuels”,

<http://www.unilever.com/images/sd_Promoting-Sustainable-Biofuels_tcm13-

299099.pdf>.

Weerawardena, J. Mort, G. Liesch, P. & Knight, G. 2007. Conceptualizing accelerated

internationalization in the born global firm: A dynamic capabilities perspective.

Journal of World Business, Vol. 42, Iss.3, pp. 294-306.

Yin, R.K. (1994). “Case Study Research. Design and Methods”. Sage publications, 2nd

Edition.

Yin, R. K. (2003), “Case Study Research”, Thousand Oaks, CA: SAGE Publications.

Yip, G. 1989. Global strategy ... in a world of nations? Sloan management review, Vol. 31,

Iss. 1, pp. 29-42.

Zach, L. (2006). “Using a multiple-case studies design to investigate the information-

seeking behavior of arts administrators”. University of Illinois.

85

Fig.7. Abengoa Bioenergy’s Plants in the EU

86

Tables:Table 1. Theories Explaining the Internationalization Process of the Firm

Theory/Perspective Variables affecting the

internationalization development

Delimitations

(excluded issues)

Connection

with the

Problem

Statement

Industry-based

Theory

Industry structure conditions: buyers,

suppliers, rivalry, substitutes and

potential entrants

Company’s resources;

Institutional pressure.

How

the

mar

ket

of b

io-

dies

el a

nd b

io-e

than

ol i

n

the

EU

ca

n

be

char

acte

rize

d? Institutional based

theory

Coercive and normative pressures from

governmental and non-governmental

organizations

Industry structure

conditions;

Company’s internal

resources

87

Transaction Cost

Approach

Cost-efficiency; High degree of

control; Internalization;

Little flexibility; Little

market knowledge; Risk.

Firms can build trustful

partnerships with

agents/distributors and avoid

great resource commitment

in subsidiary.

Wha

t kin

d of

ent

ry m

odes

and

bus

ines

s re

latio

nshi

ps d

o bi

ofue

l pro

duce

rs p

refe

r an

d ar

e th

ere

any

reas

ons

for

thei

r st

rate

gic

choi

ces?

Wha

t ki

nd o

f in

tern

atio

naliz

atio

n st

rate

gies

and

bus

ines

s fo

cus

coul

d bi

ofue

l

prod

ucer

s in

the

EU fo

llow

in fu

ture

?

Uppsala Model Experiential knowledge; Psychic

distance; incremental stages of

internationalization.

In practice companies do not

follow deterministic stages

of internationalization.

Born Globals Company’s unique source of

competitive advantage; quick

expansion.

External sources.

Strategic

Competition

perspective

Internal resource of competitive

advantage; Cost leadership or

differentiation; Economies of scale and

scope; Global coordination.

External sources.

Network Approach Cooperation strategies through

relationships with suppliers, buyers and

others.

Business networks are most

likely to emerge where

conditions are changing

rapidly. Relationships

require trust and time to

develop, however not every

relationship turns into a

partnership.

88

Table 4. Calculated GHG Emissions for Different Raw Materials

(Source: adopted by Flach et.al 2012, p. 7-8)

Raw Materials Typical GHG savings

Rape seed biodiesel 45%

Soy bean biodiesel 40%

Sun flower biodiesel 58%

Palm oil biodiesel (Process not specified) 36%

Palm oil biodiesel (process with methane capture at oil mill) 62%

Corn ethanol, Community produced 56%

Sugar beet ethanol 61%

Sugar cane ethanol 71%

Waste vegetable or animal oil biodiesel 88%

Table 6. Main Biodiesel Producers in the EU and their Production Capacity.(Source: EurObserv’er, 2011; EBB, 2009)

Company Home Country

Number of plants Production capacity in

tonnesDiester Industrie & Diester Industrie International

France France (7), Germany (2), Italy (2), Austria (1), Belgium (1)

3 000 000

Neste Oil** Finland Finland (2), Netherlands (1) 1 180 000ADM Biodiesel Germany Germany (3) 975 000

Infinita Spain Spain (2) 900 000Natura /Biocarburantes Spain Spain (3) 855 000

Biopetrol Industries Switzerland* Germany (2), Netherlands (1) 850 000Marseglia Group Italy Italy (2) 560 000

Entaban/Eolia/NMAS Spain Spain (3) 500 000Verbio AG Germany Germany (2) 450 000

Cargill/Agravis Germany Germany (2) 370 000Acciona Energia Spain Spain (2) 283 000

*Despite the fact that Switzerland is not part of the EU but the home country for Biopetrol Industry, it is included in the analysis because of its operations in other two EU Member States.** Neste Oil is not included in the further analysis since it produces mainly second generation biofuels.Table 7. Main Bioethanol Producers in the EU and Their Production Capacity.(Source: EurObserv’er, 2011; EBB, 2009)

89

Company Country Number of plants Production capacity in million liters

Abengoa Bioenergie Spain Spain (4), Netherlands (1), France (1) 1 283

Tereos France France (6) 725Crop Energies Germany Germany (1), Belgium (1), France (1) 700

Cristanol France France (4) 540Agrana Austria Austria (1), Hungary (1) 410

Verbio Germany Germany (2) 355Agroetanol Sweden Sweden (1), Czech Republic (1) 310

Table 9. “Partners of Diester 30% Partners“Source: Based on http://www.partenaires-diester.fr/carte/

“Diester Industrie 30%” Partners Business area

3 Valleys manufacture of egg products for the food industryAMIENS METROPOLE One of 33 municipalities. This one is the

municipality of the City of Amiens form a single administration and integrate transport policy and sustainable development into their policy.

CHAMPAGNE CEREALS grain cooperative group based in Reims

Urban Community of La Rochelle – RTCR public industrial and commercial service provider Urban Community.

Agglomeration community of Rouen Haute-Normandie

third urban community of France

Conurbation COUNTRY Châtelleraudais 12 municipalitiesCommunity of Municipalities of Epernay 13 municipalities

Agglomeration community of Val de Loire ORLEANS

22 municipalities of agglomeration

Urban Community of Alençon City of history, trade and cultureCommunities of Communes Causses Millau - Aveyron KEOLIS

Community of Millau

BUS COMPANY OF MONACO operator of public transport in the Principality of Monaco

DANONE FRESH PRODUCTS FRANCE Danone France Fresh Produce (DPFF), market leader in sustainable dairy products

DERICHEBOURG ENVIRONMENT a major player in the environmental services market

Geopark Amusement park activities for seminarsLARGE GARAGE DU GARD - Peugeot Nîmes Peugeot dealer in Nimes

COOPERATIVE GROUPS Maïsadour Production and marketing of seeds, grain, farm supply, production of vegetables

MILLET group French leader in the manufacture of doors and

90

windows

Nantes Métropole Urban CommunityNEO2 NEO2 organizes driving courses and competitions

QUIMPER COMMUNITY urban communityRATP Business transit of Ile de France

REGIE WATER CANAL Belletrud of PEYMEINADE (06)

The Water Board Canal Belletrud including 6 units

SITA Centre West a subsidiary of SITA's leading regional integrated waste management group

SITA Dectra a subsidiary of SITA's leading regional integrated waste management group

SITA ILE-DE-FRANCE a subsidiary of SITA's leading regional integrated waste management group

SITA North a subsidiary of SITA's leading regional integrated waste management group

SITA Normandy and Picardy a subsidiary of SITA's leading regional integrated waste management group

SITAC - Agglomeration of Calais Organizer of public transport for six municipalitiesSIVOM Valley Yerres and Sénarts includes 15 municipalities

SMICTOM VALS AUNIS SMICTOM AUNIS VALS is a community that provides collection, treatment and recovery of household waste

SNN regional subsidiary of SITA France

Transport Company of Grand Angoulême (TAG) A Company on the behalf of the city's public transport network of the Grand Angoulême.

Society of Urban Transportation Paloise Mixed business company, delegated public serviceCompany TRIBALLAT – Noyal family business, delivery of food

City GRAND CROWN urbanized area, port and industrial activityCity of Rueil-Malmaison The city practice collection and recycling of

household waste and garden wasteCity of Saint-Quentin (Aisne) Municipality

City of Troyes municipality exercising environmental impactCity VITROLLES City involved in broader municipal environmental

policy to maximize energy efficiency in the transport sector but also increasing public awareness

City of Le Havre industrial port cityVILLEMONT André SA family business of collecting and selling grain

Table 10. Biopetrol Industries Structure(Source: http://www.biopetrol-ind.com)

91

Table 11. Abengoa Bioenergy Partnerships(Source: http://www.abengoabioenergy.com/web/en/acerca_de/colaboraciones/)

Abengoa Bioenergy Partners Business area

Industrial partnersAntares Group engineering and development firm focused on Bioenergy, Renewable

Power, and Energy Efficiency projects

Cargill an international producer and marketer of food, agricultural, financial and industrial products and services

Dyadic global biotechnology company with patented and proprietary technologies that are used to discover, develop, manufacture and sell enzymes and other proteins for the bioenergy, bio-based chemical, biopharmaceutical and industrial enzyme industries

Genencor global leader in industrial biotechnologyNovozymes

Enzymes and other industrial biotechnology solutions

Terranol

Terranol A/S develops yeasts to be applied in 2. generation bioethanol production.

Antibióticos S.A. A world leading producers of Pharmaceutical Active Ingredients

Biópolis

a biotechnology company offering research, development and production services to companies

Neuron Albemarle chemical company

UniversitiesAuburn University

USA

92

Kansas State University

USA

Lund University

Sweden

University of Nebraska

USA

University of Concepcion Chile

University of Seville

Spain

University of Santiago de Compostela

Spain

University of Murcia Spain

University of Cartagena Colombia

University of Illinois at Urbana-Champaign

USA

Oklahoma State University USA

Research centersAsociación de Investigación y Cooperación Industrial de Andalucía

AICIA (Association of Research and Industrial Cooperation of Andalucía)

Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas

CIEMAT (Research Centre for Energy, Environment and Technology)

Centro de Investigaciones Biológicas, CIB-CSIC

Biological Research Center

National Renewable Energy Laboratory – NRELIdaho National Engineering Laboratory – INEELArgonne National Laboratory – ANLInstituto Catálisis y Petroquímicos ICP (Catalysis and Petrochemical Institute)

Washington University - St. LouisInstituto Tecnológico Agrario de Castilla y León

ITACyL (Agro-Food Technological Institute of Castilla and León)

Instituto de Tecnología Química - ITQ - de la Universidad Politécnica de Valencia

UPV (Chemical Technology Institute of the Polytechnic University of Valencia)

Netherlands Organization for Applied Scientific Research - TNO

CTAER(Centro Tecnológico Avanzado de Energías Renovables)

Advanced Technology Centre for Renewable Energy

93

CENER(Centro Nacional de Energías Renovables)

National Renewable Energy Centre

PlatformsBioplat (Spanish Platform o Biomass)European Biofuels Technology platformCTA (Andalusian Technology Corporation)

Associations of biofuelsePURE - European Bioethanol Renewable Ethanol

trade association that promotes renewable ethanol

RFA Renewable Fuel Association

UNICA - União da Indústria de Cana-de-açúcar

Biotechnology Industry Association

APPA Biocarburantes, Asociación de Productores de Energías Renovables (España)

Association of Renewable Energy Producers in Spain

Asebio, Asociación Española de Bioempresas (España)

Spanish Bioenterprise Association

Kansas Alliance for Bioenergy and Biorefining

Amfep Association of Manufacturers and Formulators of Enzyme products.

PCOR (Plains CO2 Reduction) partnership

Table 12. Crop Energies Partnerships(Source: http://www.cropenergies.com/en/Links/)

Crop Energies Partnerships Business Area

BioWanze SA the largest producer of bioethanol in Belgium and also the bioethanol plant that is the most innovative in Europe. (Crop Energies subsisdiary in Belgium)

94

Ryssen Alcools SAS the leading European producer for high-quality alcohol especially used for traditional and industrial purposes (Crop Energies subsisdiary in France)

Südzucker AG Owner of Crop Energies and Global operating German food group

BENEO-Orafti Orafti® ingredients are a range of inulin and oligofructose ingredients extracted from chicory root

Beuker Leading company on the European market of liquid-rich animals feeds

Bioraffinerie 2021 The joint project BIOREFINERY2021, which is funded by the German Federal Ministry for Education and Research (BMBF), aims at the development of a fully integrated and sustainable biorefinery

Hedimix Hedimix supplies various liquid by-products of agricultural, food products and fermentation industry as feed for pigs and cattle farmers.

REDcert certification system to fulfil the requirements of the German Biomass Sustainability Ordinances

ePURE European Producers Union of Renewable EthanolAudi Partnership for E85 / Flexible Fuel Vehicles (FFVs)

HEICO SPORTIV GmbH & Co KG

Dart Racing - TU Darmstadt Racing Team

Table 13. Summary of Results.

95

Net

wor

k R

elat

ions

Mor

e th

an 6

0 do

mes

tic p

artn

ers.

Few

big

mul

tinat

iona

l com

pani

es

as B

P an

d Pe

ugeo

t-Citr

oën.

Dan

one

is a

lso

part

of th

e ne

twor

k

but o

nly

at d

omes

tic le

vel.

Mai

nly

oil c

ompa

nies

. Oth

er

cust

omer

s are

agr

icul

tura

l and

cons

truct

ion

indu

strie

s la

rge-

scal

e

fleet

ope

rato

rs, p

ublic

sho

rt-

dist

ance

tran

spor

t.

Man

y in

tern

atio

nal a

nd d

omes

tic

partn

ersh

ips.

Part

of e

Pure

(EU

Bio

etha

nol n

etw

ork.

)

Man

y do

mes

tic p

artn

ersh

ips;

Supp

ort f

rom

the

Ger

man

gove

rnm

ent;

Part

of t

he E

U

bioe

than

ol p

rodu

cers

net

wor

k.

Ent

ry M

odes

Subs

idia

ries:

Fra

nce

(7),

Ger

man

y (2

), Ita

ly

(2),

Aus

tria

(1),

Bel

gium

(1).

Join

t ven

ture

s

(50%

ow

ners

hip)

in G

erm

any

and

Bel

gium

.

A tu

rnke

y co

ntra

ct w

ith te

chno

logi

cal

com

pany

.

Hom

e o

ffic

e i

n S

witz

erla

nd;

Subs

idia

ries:

Ger

man

y (1

), th

e N

ethe

rland

s (5

). Lo

ng-te

rm

cont

ract

s with

buy

ers a

nd s

uppl

iers

Subs

idia

ries:

Spa

in (3

), th

e N

ethe

rland

s (1

), 1

Ger

man

y (

1),

UK

(1)

; e

quity

stra

tegi

c

allia

nce

in F

ranc

e,

R&

D s

trate

gic

allia

nce;

cont

ract

ag

reem

ents

in

Sw

eden

,

the

Net

herla

nds,

Fr

ance

,

and

M

edite

rran

ean

regi

on. A

mar

ket l

eade

r in

Bra

zil a

nd U

SA.

Subs

idia

ries

in F

ranc

e (1

), G

erm

any

(2)

and

Bel

gium

(1).

Trad

ing

offic

es in

the

USA

and

Bra

zil.

Com

pani

es

Die

ster

Indu

stri

e

Biop

etro

l

Indu

stri

es

Aben

goa

Bioe

nerg

y

Cro

p En

ergi

es

96