Exploiting Global-value Chains andKnowledge-Based Capital for Growth Andrew WyckoffDirectorate for Science, Technology & Industry Nordic Conference 5 March 2013 1
OECD Reviews of Innovation Policy Completed: Luxembourg, Switzerland, New Zealand, South Africa, Chile, Norway, China, Hungary, Korea, Greece, Mexico, Russian Federation, Peru, Slovenia, Sweden Ongoing : Vietnam, Croatia, Colombia Under launch / discussion: Netherlands, France Regional reviews: Southeast Asia, Latin America Innovation www.oecd.org/sti/innovation/review s
OECD Reviews of Innovation Policy: SwedenChanging global conditions• Fundamental shifts in the world economy driven by institutional, societal and technological change.• Emergence of new global actors new market opportunities and new competition (including in high-end markets / segments of GVCs).• Global corporate restructuring – offshoring of MNE production activities and corporate research centres. www.oecd.org/sti/innovation/reviews
The rise of Global Value Chains• Rise due to technology (ICT & transportation); modular production, trade & investment liberalisation;• Growing complexity, fragmentation and specialisation of production, leading to networks of activities,• Shift in factors of competitiveness towards tacit factors – knowledge-based capital – R&D, IP, software, data, supply-chain mngt.
Airline industry: Boeing 787 Dreamliner Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage: Wing ice protection: GKN Aerospace (UK) Kawasaki Heavy Industries (Japan) Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA) Rear fuselage: Escape slides: Air Cruisers (USA) Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows: Commercial Airplanes (USA) Zodiac Aerospace (USA) Lavatories: PPG Aerospace (USA) Flight deck seats: Jamco (Japan) Ipeco (UK)Raked wing tips: Korean AirlinesAerospace division (Korea) Horizontal Stabiliser: Alenia Aeronautica (Italy) Engines: GE Engines (USA), Rolls Royce (UK) Aux. power unit: Hamilton Centre wing box: Sundstrand (USA) Fuji Heavy Industries (Japan) Engine nacelles: Goodrich (USA) Passenger doors: Tools/Software: Dassault Systemes (France) Latécoère Aéroservices (France) Navigation: Honeywell (USA) Landing gear: Messier-Dowti (France) Pilot control system: Rockwell Colins (USA) Cargo doors: Saab (Sweden) Electric brakes: Messier-Bugatti (France) Wiring: Safran (France) Tires: Bridgestone Tires (Japan) Prepreg composites: Final assembly: Boeing Toray (Japan) Commercial Airplanes (USA) Source: www.newairplane.com
Toys: Barbie dollDesign: California, Nylon hair: JapanUSA Body material: Chinese TaipeiMoulds, paintpigments: USA Clothing: China Quality testing:Assembly: USAIndonesia and Malaysia Marketing: USA Source: Grossman and Rossi-Hansberg (2006)
Apple’s iPodThe Apple iPod = 299$ of Distribution of the Chinese exports to US value added • 299 US$ – 75$ profit to US (Apple) – 73$ whls/retail US (Apple) – 75$ to Japan (Toshiba) – 60$ 400 parts from Asia – 15$ 16 parts from the US – 2$ assembly by China • iTunes Music Store (2003) – 70% digital market share – Platform for everything – Data flow to the consumer7
5 Key Policy Issues1. Measurement of GVCs: Trade in Value Added (TiVA)2. GVCs and trade policy3. GVCs and national competitiveness… the recurring discussion on industrial policy4. GVCs and global systemic risk5. GVCs and upgrading – knowledge based assets
1. Measurement: Issues with current trade statistics• Three issues: 1. Multiple counting of intermediate goods and services 2. Tends to conceal the actual patterns of trade & beneficiaries 3.Incomplete picture as knowledge and income flows are not measured. 9
OECD-WTO TiVA DatabaseJanuary 16, 2013 7:20 pmTrade’s added value: New statistics revealglorious interdependence of countriesStatistics is not always the bedfellow of lies anddamned lies. At its best, it brings epiphanies.An initiative by the OECD and the World TradeOrganisation to map the value added embodiedin international trade flows should be an eye-opener for policy makers
OECD work on GVCs and TiVA 100% 7 Value added 90% 6 by second Decomposition 80% 70% 5 tier suppliers Value added of gross 60% 4 by first tier exports 50% 3 suppliers 40% 2 30% Value added in the 20% 1 country of Final 10% finalconsumption Final 0% assembly production 5 1 4 6 2 Trade in inputs Trade in 3 (second tier inputs (first tier suppliers) suppliers) 7 11
TiVA: Value-added chains (by product)Germany- automotive China - electronics 12
Trade in Services: Gross vs. Value Added % total exports of % total exports of gross flows value-added% Gross flows Value-added flows 1995 2009 1995 2009706050403020100 China United Germany Japan United France Italy Canada Rest of China United Germany Japan United France Italy Canada Rest of States Kingdom World States Kingdom World
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 a i s e o d n I a n i h C M o c i x e e l i h C y a w r o NotrdeFnaisuR a e r o K a c i r f A h t u o S d n a C l i z a r B u A i l a r t s n p a J c i b u p e R k a v o l S i l b u p R h c e z C d n a l o P d n l a Z w e N Domestic content y r a g n u H y e k r u T s d n a l r h t e N a i n e v o l S y n a m r e G a i r t s u A d n a l r e z t i w S y l a t I l a g u t r o P a i d n I n a l e c I d s a S d e t i n U d a l n i F Services matter n d e w S Services value added as a % of exports, 2009 a i n o t s E Foreign content l e a r s I n a r F e c k r a m n e D m u i g l e B n i a p S m o g K d e t i n U d n a l e r I14 c e r G g r o b m e x u L
www.oecd.org/trade/valueaddedForeign value-added in exports by country oforigin
0 100 10 20 30 40 50 60 70 80 90 g r o b m e x u L ic b u p e R k a v lo S y r a g n u H d n la e r I a e r o K li b u p R h c e z C ia n o t s E s d n la r h t e N d n la e c I d la in F n d e w S m iu lg e B l e a r s I l a g u t r o P o ic x e M ia n e v lo S d n la r e z it w S k r a m n e D a in h C d n la o P e c n a r F y n a m r e G ia r t s u A iI da n c e r G y e k r u T d n a C d ln a Z w e N in a p S ile h C higher ratios Domestic value added to gross export ratio, %, 2009 rich countries have typically ly a t I m o g K d e it n U Large and mineral a ic r f A h t u o S n p a J ia s e o d n I y a w r o N li a r t s u A s a S d e it n U18 il z a r B What does the first release tell us? o t r d e F n ia s u R
Who trades with whom? Denmark trade balance, USD millions, 2009 Gross Trade Balance Value Added Trade Balance200001500010000 5000 0 -5000-10000-15000 Germany Netherlands Norway France United Italy China Spain United Sweden Rest of the Kingdom States World 19
Who trades with whom? Finland trade balance, USD millions, 2009 Gross Trade Balance Value Added Trade Balance1500010000 5000 0 -5000-10000 Russian Germany United France Sweden Japan Italy Norway United China Rest of the federation States Kingdom World 20
Who trades with whom? Norwegian trade balance, USD millions, 2009 Gross Trade Balance Value Added Trade Balance25000200001500010000 5000 0 -5000-10000 Korea China Denmark Sweden Italy United France Germany Netherlands Rest of the United States World Kingdom 21
Who trades with whom? Swedish trade balance, USD millions, 2009 Gross Trade Balance Value Added Trade Balance3000025000200001500010000 5000 0 -5000-10000-15000 Germany Denmark Norway France Finland Italy United Japan China United Rest of the Kingdom States World 22
GVCs and national competitiveness• Imports increasingly important for exports (no mercantilist approach: ‘exports are good, imports are bad’)• Better understanding the direct link between: o trade and income & jobs o manufacturing and services;• New opportunities for SMEs to gain access to global markets & new demands: timeliness, standards,
A GVC perspective is also important for upgrading, i.e. increasing value Old paradigm: creation From low to high value-added sectors New paradigm: From low to high value-added activities within sectors 24
Moving up the value chain – capturing more value Value creation along the value chain Source: Presentation G. Gereffi , GVC workshop ‘GVCs and emerging countries’ workshop , Paris (2010)
What is knowledge-based capital (KBC)? Three main types of assets:Computerised information • software & DatabasesInnovative property • patents, copyrights, trademarks & designsEconomic competencies: • brand equity, firm-specific human capital, business networks, organisational know-how that increases enterprise efficiency, etc.) 26
The rise of GVCs and the role of KBCs 27 Source: IMD (2000) Innovation and Rennovation: The Nespresso Story, IMD046, 03/2003
KBC accounts for over half of all business investment in several countries … Business investment in KBC and tangible assets as a share of GDP, 2010 Source: OECD calculations based on INTAN-Invest and National Sources.
Competences and capacity to innovate Comparative performance of national science and innovation systems, (OECD median =100), 2011 Top/bottom 5 OECD values Middle range of OECD values OECD median Science Business R&D and Entrepreneurship innovation 200 Top half 150 OECD 100Bottom half 50 OECD 0 Source: OECD Science, Technology and Industry Outlook 2012.
Interactions and human resources for innovation Comparative performance of national science and innovation systems, (OECD median =100), 2011 Top/bottom 5 OECD values Middle range of OECD values OECD median Internet for Knowledge flows and Human resources innovation commercialisation 200 Top half 150 OECD 100Bottom half 50 OECD 0 Source: OECD Science, Technology and Industry Outlook 2012.
Framework Conditions 2.0 Tax Personal data CompetitionCorporate reporting Improving measurement Knowledge- Based Skills Capital Intellectual property rights Inequality Entrepreneurship Global value chains
Base Erosion & Profit Shifting 33 Source: Images.com/Corbis
Relevant to many policy issues Tax Personal data CompetitionCorporate reporting Improving measurement Knowledge- Based Skills Capital Intellectual property rights Inequality Entrepreneurship Global value chains
What is an asset? 35
Upgrading Policies for GVCs and• GVCs KBC – Imports are essential for exports; – Services are key: 50% of VA generated by GVCs – Activities not industries; – Importance of tacit / “sticky” KBC• KBC – Innovation: more than R&D; reassess R&D Tax credits; recognise the importance of design – Entrepreneurship: young ≠ small; – Finance: debt is poorly suited to KBC.
Contact Information• Watch the video: www.youtube.com/watch?v=RZKX-0SK41U&• Use the interactive map: www.oecd.org/trade/valueadded• Contact us: – Andrew.Wyckoff@oecd.org – Tiva.firstname.lastname@example.org 37